Business, Management and Accounting
4 years ago

Product type influences trade credit terms, impacting financing and buyer power.

Review of Financial Studies
What You Sell Is What You Lend? Explaining Trade Credit Contracts
Mariassunta Giannetti, Mike Burkart, Tore Ellingsen

Paper Summary

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Trade credit is influenced by the type of product being sold and the relationship between the company and the bank. Companies selling unique products have more accounts receivable, while those buying services get cheaper credit. Firms getting trade credit often use less informed banks. Most companies receive trade credit at low cost, especially if they are creditworthy and have market power.