Heterogeneous Liquidity Shock Propagation Through Trade Credit

2018 ◽  
Author(s):  
Hocheol Nam ◽  
Kazuo Yamada
Keyword(s):  
Trade Credit ◽  
Shock Propagation ◽  
Liquidity Shock

scholarly journals The Insurance Value of Trade Credit

2019 ◽  
Vol 11 (7) ◽  
pp. 87
Author(s):  
Mario Eboli ◽  
Andrea Toto
Keyword(s):  
Financial Markets ◽  
Financial Constraints ◽  
Trade Credit ◽  
Credit Rationing ◽  
Financial Policy ◽  
Positive Probability ◽  
Optimal Amount ◽  
Liquidity Constraint ◽  
Manufacturing Sectors ◽  
Liquidity Shock

The extensive use of trade credit in all manufacturing sectors, despite its high cost, is an apparent puzzle that economists explain in terms of asymmetric information problems affecting financial markets. The financial constraints arising from credit rationing and limited access to stock markets suffice to induce firms to resort to trade credit as a supplemental source of funding. Nonetheless, empirical evidence shows that also large and liquid firms facing no binding financial constraints use substantial amounts of trade credit. We address this issue by modelling the financial policy of a firm that does not face a binding liquidity constraint but the risk of being constrained in the future. We characterise the optimal amount of trade credit held by such a firm, and we show that a positive probability of facing a liquidity constraint leads the firm to fund its inventories with trade credit, even if cheaper sources of funds are available. The rationale is that trade credit provides implicit coverage against liquidity risk. Therefore, the optimal amount of trade credit grows with the expected size of a possible liquidity shock and with the likelihood of its occurrence.

Credit Shock Propagation Along Supply Chains: Evidence from the CDS Market

2021 ◽  
Author(s):  
Senay Agca ◽  
Volodymyr Babich ◽  
John R. Birge ◽  
Jing Wu
Keyword(s):  
Supply Chain ◽  
Supply Chains ◽  
Trade Credit ◽  
Strong Shock ◽  
Credit Default Swap ◽  
Shock Propagation ◽  
Industry Competition ◽  
Credit Default ◽  
Credit Shocks ◽  
Chain Links

Using a panel of credit default swap (CDS) spreads and supply chain links, we observe that both favorable and unfavorable credit shocks propagate through supply chains in the CDS market. Particularly, the three-day cumulative abnormal CDS spread change (CASC) is 63 basis points for firms whose customers experienced a CDS up-jump event (an adverse credit shock). The value is 74 basis points if their suppliers experienced a CDS up-jump event. The corresponding three-day CASC values are –36 and –38 basis points, respectively, for firms whose customers and suppliers, respectively, experienced an extreme CDS down-jump event (a favorable credit shock). These effects are approximately twice as large for adverse credit shocks originating from natural disasters. Credit shock propagation is absent in inactive supply chains and is amplified if supply chain partners are followed by the same analysts. Industry competition and financial linkages between supply chain partners, such as trade credit and large sales exposure, amplify the shock propagation along supply chains. Strong shock propagation persists through second and third supply chain tiers for adverse shocks but attenuates for favorable shocks. This paper was accepted by Kay Giesecke, finance.

Trade Credit Contracts

2011 ◽  
Author(s):  
Leora Klapper ◽  
Luc Laeven ◽  
Raghuram Rajan
Keyword(s):  
Trade Credit ◽  
Credit Contracts

Modeling of Shock Propagation in Non-uniform Density Media

2020 ◽  
Author(s):  
Yifeng Tian ◽  
Farhad A. Jaberi ◽  
Daniel Livescu
Keyword(s):  
Shock Propagation ◽  
Uniform Density

Banks, Firms and Trade Finance Infrastructure in Albania

2016 ◽  
Vol 1 (4) ◽  
pp. 192
Author(s):  
Dorina Çumani
Keyword(s):  
International Trade ◽  
Trade Credit ◽  
Critical Role ◽  
Political Risk ◽  
Risk Profile ◽  
Trade Finance ◽  
Domestic Trade ◽  
Business Opportunities ◽  
Political Unrest ◽  
Risk Situation

Firms engaged in international trade face tosome risks, which are either not present or less present for the domestic trade. All, firms- SMEs or Companies contain elements of risk, but when they trade internationally, the risk profile is different than trading home. These include commercial risk, political risk, exchange and the country risks, such asthe possibility ofwar, political unrest, or unexpected import bans or tariffs, act. Banks play a critical role in facilitating international trade by guaranteeing international payments and reducing the risk of trade transactions in exports or imports. The effect of insured trade credit on trade is very strong and remains stable over the cycle, in crisis and non-crisis periods (WTO, 2012). By shortening the time of production, delivery, approved credit, the risk situation can be improved and in the same way as liquidity and profitability (Anders Grath 2008). If Albanian traders control the risks they can expanding exports into new markets and it can be very profitable. Using trade finance and reducing risks Albanian firms will be able to develop and take advantage of business opportunities. The trade finance infrastructure of Albaniaisthe institutions, laws, regulations and other systems related to the following three activities

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