IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v36y2023i2p814-858..html
   My bibliography  Save this article

Counterparty Risk: Implications for Network Linkages and Asset Prices

Author

Listed:
  • Fotis Grigoris
  • Yunzhi Hu
  • Gill Segal
  • Ralph Koijen

Abstract

We study the relation between trade credit, asset prices, and production-network linkages. Empirically, firms extending more trade credit earn 7.6 p.a. lower risk premiums and maintain longer relationships with customers. Using a production-based model, we quantitatively explain these novel facts. Trade credit reduces the departure probability of high-quality customers, thereby reducing firms’ exposures to systematic costs incurred in finding new customers. The mechanism predicts that the aggregate amount of trade credit proxies for customer-search costs and that suppliers with shorter-duration links to customers command higher expected returns. We confirm these and other novel predictions in the data.

Suggested Citation

  • Fotis Grigoris & Yunzhi Hu & Gill Segal & Ralph Koijen, 2023. "Counterparty Risk: Implications for Network Linkages and Asset Prices," The Review of Financial Studies, Society for Financial Studies, vol. 36(2), pages 814-858.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:2:p:814-858.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhac044
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ersahin, Nuri & Giannetti, Mariassunta & Huang, Ruidi, 2024. "Trade credit and the stability of supply chains," Journal of Financial Economics, Elsevier, vol. 155(C).
    2. Cooper, Michael & Gulen, Huseyin & Ion, Mihai, 2024. "The use of asset growth in empirical asset pricing models," Journal of Financial Economics, Elsevier, vol. 151(C).

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:36:y:2023:i:2:p:814-858.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.