Journal
JOURNAL OF CORPORATE FINANCE
Volume 49, Issue -, Pages 308-323Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jcorpfin.2018.01.009
Keywords
Trade credit; Financial crisis; Market power; Monopoly rents; Liquidity provision
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Funding
- GV-Pesquisa
- Fundacao CAPES
- FAPESP - Fundacao de Amparo a Pesquisa do Estado de Sao Paulo (The State of Sao Paulo Research Support Foundation)
- CNPq - Conselho Nacional de Desenvolvimento Cientifico e Tecnologico (National Council for Scientific and Technological Development)
- FGV Rede de Pesquisa (The Applied Research and Knowledge Network of Fundacao Getulio Vargas)
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This paper investigates whether product market power affects trade credit decisions. We exploit the 2007-08 credit crisis in the U.S. as a source of variation in the importance of product market power for trade credit. We find that a one standard deviation increase in market power is associated to a decrease in payables of approximately four days during the crisis, showing that high market power firms alleviate financial constraints from their suppliers to avoid the loss of monopoly rents. Our inferences are robust to structural and non-structural measures of market power, both at the firm and at the industry levels, and the inclusion of controls to address potential confounding effects deriving from other firm features, including financial constraints, industry specific shocks and macroeconomic effects. (C) 2018 Elsevier B.V. All rights reserved.
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