CFCM 12/14: No Going Back: How the Production Process Affects Access to Short-term Credit

Abstract

The relationship between the production process and short-term credit is well established in the literature. Here we argue that the stage of fabrication of inventories can affect the incentives to offer and take up trade credit, an important source of short- term credit for businesses. Using a panel of over half a million observations for French firms across several sectors, we find evidence that trade credit is enhanced through processing of goods by the seller, as goods become specialized. But we also find that as buyers process goods the sellers incentives to extend trade credit diminishes. In short, once production takes place there is no going back.

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Authors

Simona Mateut, Paul Mizen and Ydriss Ziane

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