- March 28, 2011 - 12:30
- ZLC, Lecture Room 221, Zaragoza (Spain)
Department of Finance, Accounting & Real Estate
European Business School, Wiesbaden, Germany
” Trade Credit Defaults and Liquidity Provision by Firms ”
Using a unique data set on trade credit defaults among French firms, we investigate whether and how trade credit is used to relax financial constraints. We show that credit constrained firms that face liquidity shocks are more likely to default on trade credit. Our estimates suggest that credit constrained firms pass on a sizeable fraction of the liquidity shocks they face to their suppliers down the trade credit chain. The evidence is consistent with the idea that firms provide liquidity insurance to each other and that this mechanism is able to alleviate the consequences of credit constraints. In addition, we show that the chain of defaults stops when it reaches firms that have access to outside finance (“deep pockets”). This suggests that liquidity is allocated from firms with access to outside finance to credit constrained firms along trade credit chains. (joint work with Frédéric Boissay)
Reint Gropp is a Professor of Financial Economics & Taxation at the European Business School (EBS) since 2008. Before joining the EBS he was an Economist at the IMF and worked at the European Central Bank in Frankfurt, where until 2007 he was Deputy Head of Financial Research. He has also been a Visiting Professor at University Frankfurt. He is currently a research fellow of the CFS, and a research associate with the Centre for European Economic Research (ZEW). He is also the Executive Director Research Finance at the EBS. He is the winner of the 2007 Barclays Best Paper Award for the overall best paper presented at the European Finance Association. He holds an undergraduate degree from the University of Freiburg (Germany) and M.S. and PhD degrees in Economics from the University Wisconsin-Madison. Professor Gropp has published extensively in banking and financial economics, including in the Quarterly Journal of Economics, the Review of Financial Studies, the Journal of Money, Credit and Banking, the Review of Finance and many other Finance and Economics Journals. His work has been widely in the popular press, including the Financial Times, the Independent (UK) and the Welt (Germany).