NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trade Credit Contracts

Leora F. Klapper, Luc Laeven, Raghuram Rajan

NBER Working Paper No. 17146
Issued in June 2011
NBER Program(s):   CF

We employ a novel dataset on almost 30,000 trade credit contracts to describe the broad characteristics of the parties that contract together, the key contractual terms such as the discount for early payment and the days by when payment is due. Whereas prior work has typically used information on only one side of the buyer-seller transaction, this paper utilizes information on both. We find that the largest and most creditworthy buyers receive contracts with the longest maturities from smaller suppliers, with the latter extending credit to the former perhaps as a way of certifying product quality. Discounts for early payment seem to be offered to riskier buyers to limit the potential nonpayment risk when credit is extended for these non-financial reasons.

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Document Object Identifier (DOI): 10.3386/w17146

Published: Leora Klapper & Luc Laeven & Raghuram Rajan, 2012. "Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 838-867.

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