Using data on exogenous liquidity losses generated by the fraud and failure of a cash-in-transit firm, we demonstrate a causal impact on firms' trade credit usage. We find that firms manage liquidity shortfalls by increasing the amount of drawn credit from suppliers and decreasing the amount issued to customers. The compounded trade credit adjustments are at least as great, if not greater than corresponding adjustments in cash holdings, suggesting that trade credit positions are economically important sources of reserve liquidity. The underlying mechanism in trade credit adjustments is in part due to shifts in credit durations-both upstream and downstream.
Using data on exogenous liquidity losses generated by the fraud and failure of a cash-in-transit firm, we demonstrate a causal impact on firms' trade credit usage. We find that firms manage liquidity shortfalls by increasing the amount of drawn credit from suppliers and decreasing the amount issued to customers. The compounded trade credit adjustments are at least as great, if not greater than corresponding adjustments in cash holdings, suggesting that trade credit positions are economically important sources of reserve liquidity. The underlying mechanism in trade credit adjustments is in part due to shifts in credit durations-both upstream and downstream.
We document five facts about the distributional income effects of monetary policy shocks using Swedish administrative individual-level data. (i) The effects of monetary policy shocks are U shaped over the income distribution—that is, expansionary shocks increase the incomes of high- and low-income individuals relative to middle-income individuals. (ii) The large effects in the bottom are accounted for by the labor-income response and (iii) those in the top by the capital-income response. (iv) The heterogeneity in the labor-income response is due to the earnings heterogeneity channel, whereas (v) that in the capital-income response is due to the income composition channel. (JEL D31, E32, E52, J31)
We use Swedish administrative individual-level data to document five facts about the distributional income effects of monetary policy. (i) The effects of monetary policy shocks are Ushaped with respect to the income distribution-i.e., expansionary shocks increase the incomes of high-and low-income individuals relative to middle-income individuals. (ii) The large effects in the bottom are accounted for by the labor-income response and (iii) those in the top by the capital-income response. (iv) The heterogeneity in the labor-income response is due to the earnings heterogeneity channel, whereas (v) that in the capital-income response is due to the income composition channel.
Companies can manage risk by using derivatives or through operational hedging. But there is a third possibility: to leave their operating cash flows unhedged while ensuring that the firm has access to external finance in adverse states of the world. This article reports the findings of a recent survey of over 800 Swedish companies that aims to shed light on the relative importance of these three risk management methods, as well as how they interact in corporate risk management programs. The results show that risk management practices aimed at ensuring access to external finance are the main method used by the largest number of companies, followed by operational hedging methods and financial hedging with derivatives. Large companies hedge using both operational methods and derivatives, whereas small firms are less likely to use derivatives but nevertheless attach great importance to the other two ways of managing risk. Even among the largest companies, operational hedging tends to deemed more important than hedging with derivatives—a finding that, although perhaps a surprise to financial professionals, underscores the authors’ finding that operational and derivative‐based hedges function as complements rather than substitutes. Indeed, the authors report that the most financially sophisticated companies tend to use all three of these common forms of risk management.
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We empirically investigate the proposition that firms charge premia on cash prices in transactions involving trade credit. Using a comprehensive Swedish panel dataset on product-level transaction prices and firm-characteristics, we relate trade credit issuance to price setting. In a recession characterized by tightened credit conditions, we find that prices increase significantly more on products sold by firms issuing more trade credit, reflecting their larger exposures to increased funding costs and counterparty risks. Our results thus demonstrate the importance of trade credit for price setting and show that trade credit issuance induces a channel through which financial frictions affect prices.
We empirically investigate the proposition that firms charge premia on cash prices in transactions involving trade credit. Using a comprehensive panel data set on product-level transaction prices and firm characteristics, we relate trade credit issuance to price setting. In a recession characterized by tightened credit conditions, we find that prices increase significantly more on products sold by firms issuing more trade credit, in response to higher opportunity costs of liquidity and counterparty risks. Our results thus demonstrate the importance of trade credit for price setting and show that trade credit issuance induces a channel through which financial conditions affect prices.
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