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Industry Structure and the Strategic Provision of Trade Credit by Upstream Firms

Author

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  • Alfred Lehar
  • Victor Y Song
  • Lasheng Yuan
  • Itay Goldstein

Abstract

Trade credit can serve as a collusion mechanism for competing supply chains to increase producer surplus in medium concentrated industries. We analyze theoretically how this form of financing influences retailers’ behavior in the product market, study incentives to deviate, and show evidence consistent with the model’s predictions. Trade credit use is inversely U shaped in industry concentration, and this pattern is more pronounced in industries more prone to collusion and when incentives to deviate are smaller.

Suggested Citation

  • Alfred Lehar & Victor Y Song & Lasheng Yuan & Itay Goldstein, 2020. "Industry Structure and the Strategic Provision of Trade Credit by Upstream Firms," The Review of Financial Studies, Society for Financial Studies, vol. 33(10), pages 4916-4972.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:10:p:4916-4972.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa002
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    Cited by:

    1. Tao Luo & Ruhe Xie, 2021. "Supply Chain Power and Corporate Environmental Responsibility: Mediation Effects Based on Business Performance," IJERPH, MDPI, vol. 18(17), pages 1-14, September.
    2. James, Hui Liang & Ngo, Thanh & Wang, Hongxia, 2023. "The impact of more able managers on corporate trade credit," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    3. Allen, Franklin & Qian, Meijun & Xie, Jing, 2022. "Implicit benefits and financing," Journal of Financial Intermediation, Elsevier, vol. 52(C).
    4. Gofman, Michael & Wu, Youchang, 2022. "Trade credit and profitability in production networks," Journal of Financial Economics, Elsevier, vol. 143(1), pages 593-618.

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