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Trade Credit Contracts

Leora F. Klapper, Luc Laeven, Raghuram Rajan

NBER Working Paper No. 17146
Issued in June 2011, Revised in June 2020
NBER Program(s):Corporate Finance

We employ a novel dataset on almost 30,000 trade credit contracts to describe the broad characteristics of the parties that contract together and the key contractual terms of these contracts. Whereas prior work has typically used information on only one side of the buyer-seller transaction, this paper utilizes information on both, allowing for the first analysis of buyer-seller pairs. An equally important distinction is that we have multiple contracts for the same buyer or supplier firms, rather than a firm-average response, allowing for the correction of time-invariant firm characteristics that might determine the choice of credit terms. We find that the largest and most creditworthy buyers receive contracts with the longest maturities from smaller suppliers, and that discounts for early payment tend to be offered to riskier buyers. (JEL G32)

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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. citation courtesy of

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