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Trade Credit and the Effect of Macro-Financial Shocks: Evidence from U.S. Panel Data

Published online by Cambridge University Press:  06 April 2009

Woon Gyu Choi  and
Yungsan Kim
Woon Gyu Choi
Affiliation:
wchoi@imf.org, IMF Institute, International Monetary Fund, 700 19th Street NW, Washington, DC
Yungsan Kim
Affiliation:
ecyskim@hanyang.ac.kr, Department of Economics and Finance, Hanyang University, Hangdang-dong, Seongdong-gu, Seoul 133–791, Korea.
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Abstract

Using disaggregated panel data, we examine how firms change trade credit in response to a monetary tightening. We find that both accounts payable and accounts receivable increase with tighter monetary policy, implying that trade credit helps firms absorb the effect of a credit contraction. Further, both S&P 500 firms and a comparison group of smaller firms increase net trade credit (accounts receivable minus payable), making up for the reduced liquidity associated with tighter policy. However, we find no evidence that large firms play this role more actively than smaller firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 40 , Issue 4 , December 2005 , pp. 897 - 925
Copyright
Copyright © School of Business Administration, University of Washington 2005

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