Events

Dr. Ina Simonovska
Assistant Professor
Department of Economics
University of California – Davis

Abstract:

We study the interplay between bank and trade credit in emerging markets. We document that small and medium-sized enterprises (SMEs) trade off bank for trade credit, while large firms are more likely to extend trade credit, especially during financial crises. We develop a model of heterogeneous firms that extend state-contingent credit to each other along supply chains for the purpose of providing insurance in the case of adverse economic shocks. The model predicts that firms obtain more trade credit the less bank credit they have available, the larger is their scale of operation, and the more-debt constrained they are relative to their trading partner. Further, more-debt constrained firms receive more state-contingent trade credit from their less-constrained partners. We validate the model’s predictions using firm-level data from Hungary. We conclude that the insurance channel of trade credit earns it a role of a macroeconomic stabilizer in emerging markets.

This is a joint seminar organized by HKU, CUHK, City U, HKUST and Lingnan U.

Please contact Xiameng PAN at xmpan@connect.hku.hk for registration.