{"title":"Counterparty Risk: Implications for Network Linkages and Asset Prices","authors":"Fotis Grigoris, Yunzhi Hu, G. Segal","doi":"10.1093/rfs/hhac044","DOIUrl":null,"url":null,"abstract":"\n We study the relation between trade credit, asset prices, and production-network linkages. Empirically, firms extending more trade credit earn 7.6% p.a. lower risk premiums and maintain longer relationships with customers. Using a production-based model, we quantitatively explain these novel facts. Trade credit reduces the departure probability of high-quality customers, thereby reducing firms’ exposures to systematic costs incurred in finding new customers. The mechanism predicts that the aggregate amount of trade credit proxies for customer-search costs and that suppliers with shorter-duration links to customers command higher expected returns. We confirm these and other novel predictions in the data.","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":null,"pages":null},"PeriodicalIF":6.8000,"publicationDate":"2022-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"4","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Financial Studies","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1093/rfs/hhac044","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 4
Abstract
We study the relation between trade credit, asset prices, and production-network linkages. Empirically, firms extending more trade credit earn 7.6% p.a. lower risk premiums and maintain longer relationships with customers. Using a production-based model, we quantitatively explain these novel facts. Trade credit reduces the departure probability of high-quality customers, thereby reducing firms’ exposures to systematic costs incurred in finding new customers. The mechanism predicts that the aggregate amount of trade credit proxies for customer-search costs and that suppliers with shorter-duration links to customers command higher expected returns. We confirm these and other novel predictions in the data.
期刊介绍:
The Review of Financial Studies is a prominent platform that aims to foster and widely distribute noteworthy research in financial economics. With an expansive editorial board, the Review strives to maintain a balance between theoretical and empirical contributions. The primary focus of paper selection is based on the quality and significance of the research to the field of finance, rather than its level of technical complexity. The scope of finance within the Review encompasses its intersection with economics. Sponsoring The Society for Financial Studies, the Review and the Society appoint editors and officers through limited terms.