Customer Market Power and the Provision of Trade Credit : Evidence from Eastern Europe and Central Asia
Statistics show that the sale of goods on credit is widespread among firms even when they are capital constrained and thus face relatively high costs in providing trade credit. This study provides an explanation for this by arguing that customers who possess strong market power are able to increase their customer surplus by demanding to purchase the goods on credit. This gain in customer surplus increases with the degree of asymmetric information between buyer and seller with respect to product quality. Therefore, firms that are perceived as risky are especially subject to the market power of the customer and have to sell their goods on credit. Using detailed firm-level data from a large number of firms in Eastern Europe and Central Asia, this study finds evidence consistent with this hypothesis. It finds a strong positive correlation between customer market power and trade credit provision. Furthermore, this relationship is especially strong when the supplier is more risky and in countries with limited financial sector development or a weak legal system.
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dig-okr-1098674772024-08-08T16:57:04Z Customer Market Power and the Provision of Trade Credit : Evidence from Eastern Europe and Central Asia Van Horen, Neeltje ACCOUNTING AFFILIATED ORGANIZATIONS ASYMMETRIC INFORMATION BORROWING BORROWING CONSTRAINTS CENTRAL BANK COMMERCIAL CREDIT COMPETITIVENESS CONSUMER SURPLUS DEBT DOMESTIC MARKET ECONOMIC PERFORMANCE ECONOMICS EXPECTED VALUE EXPORTS FINANCIAL CONTRACTS FINANCIAL INTERMEDIARIES FINANCIAL MANAGEMENT FINANCIAL SECTOR GDP GDP PER CAPITA GROWTH RATE INFLATION INSURANCE INTERNATIONAL TRADE INVESTMENT CLIMATE LESS DEVELOPED COUNTRY MARKET COMPETITION MARKET POWER MONETARY POLICY MONOPOLY MORAL HAZARD PRICE DISCRIMINATION PRICE INCREASE PRICE REGULATION PRODUCT QUALITY PRODUCTION COSTS PROPERTY RIGHTS PURCHASING REAL GDP REGRESSION ANALYSIS RETAIL RISK EXPOSURE SALE SALES SMALL BUSINESS SUBSTITUTES SUPPLIER SUPPLIERS TOTAL SALES TRADE CREDIT TRADE CREDITORS WORKING CAPITAL Statistics show that the sale of goods on credit is widespread among firms even when they are capital constrained and thus face relatively high costs in providing trade credit. This study provides an explanation for this by arguing that customers who possess strong market power are able to increase their customer surplus by demanding to purchase the goods on credit. This gain in customer surplus increases with the degree of asymmetric information between buyer and seller with respect to product quality. Therefore, firms that are perceived as risky are especially subject to the market power of the customer and have to sell their goods on credit. Using detailed firm-level data from a large number of firms in Eastern Europe and Central Asia, this study finds evidence consistent with this hypothesis. It finds a strong positive correlation between customer market power and trade credit provision. Furthermore, this relationship is especially strong when the supplier is more risky and in countries with limited financial sector development or a weak legal system. 2012-06-07T21:44:21Z 2012-06-07T21:44:21Z 2007-07 http://documents.worldbank.org/curated/en/2007/07/7965080/customer-market-power-provision-trade-credit-evidence-eastern-europe-central-asia https://hdl.handle.net/10986/7477 English Policy Research Working Paper; No. 4284 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank application/pdf text/plain World Bank, Washington, DC |
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Banco Mundial |
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DSpace |
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Estados Unidos |
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US |
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Bibliográfico |
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En linea |
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dig-okr |
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biblioteca |
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America del Norte |
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Biblioteca del Banco Mundial |
| language |
English |
| topic |
ACCOUNTING AFFILIATED ORGANIZATIONS ASYMMETRIC INFORMATION BORROWING BORROWING CONSTRAINTS CENTRAL BANK COMMERCIAL CREDIT COMPETITIVENESS CONSUMER SURPLUS DEBT DOMESTIC MARKET ECONOMIC PERFORMANCE ECONOMICS EXPECTED VALUE EXPORTS FINANCIAL CONTRACTS FINANCIAL INTERMEDIARIES FINANCIAL MANAGEMENT FINANCIAL SECTOR GDP GDP PER CAPITA GROWTH RATE INFLATION INSURANCE INTERNATIONAL TRADE INVESTMENT CLIMATE LESS DEVELOPED COUNTRY MARKET COMPETITION MARKET POWER MONETARY POLICY MONOPOLY MORAL HAZARD PRICE DISCRIMINATION PRICE INCREASE PRICE REGULATION PRODUCT QUALITY PRODUCTION COSTS PROPERTY RIGHTS PURCHASING REAL GDP REGRESSION ANALYSIS RETAIL RISK EXPOSURE SALE SALES SMALL BUSINESS SUBSTITUTES SUPPLIER SUPPLIERS TOTAL SALES TRADE CREDIT TRADE CREDITORS WORKING CAPITAL ACCOUNTING AFFILIATED ORGANIZATIONS ASYMMETRIC INFORMATION BORROWING BORROWING CONSTRAINTS CENTRAL BANK COMMERCIAL CREDIT COMPETITIVENESS CONSUMER SURPLUS DEBT DOMESTIC MARKET ECONOMIC PERFORMANCE ECONOMICS EXPECTED VALUE EXPORTS FINANCIAL CONTRACTS FINANCIAL INTERMEDIARIES FINANCIAL MANAGEMENT FINANCIAL SECTOR GDP GDP PER CAPITA GROWTH RATE INFLATION INSURANCE INTERNATIONAL TRADE INVESTMENT CLIMATE LESS DEVELOPED COUNTRY MARKET COMPETITION MARKET POWER MONETARY POLICY MONOPOLY MORAL HAZARD PRICE DISCRIMINATION PRICE INCREASE PRICE REGULATION PRODUCT QUALITY PRODUCTION COSTS PROPERTY RIGHTS PURCHASING REAL GDP REGRESSION ANALYSIS RETAIL RISK EXPOSURE SALE SALES SMALL BUSINESS SUBSTITUTES SUPPLIER SUPPLIERS TOTAL SALES TRADE CREDIT TRADE CREDITORS WORKING CAPITAL |
| spellingShingle |
ACCOUNTING AFFILIATED ORGANIZATIONS ASYMMETRIC INFORMATION BORROWING BORROWING CONSTRAINTS CENTRAL BANK COMMERCIAL CREDIT COMPETITIVENESS CONSUMER SURPLUS DEBT DOMESTIC MARKET ECONOMIC PERFORMANCE ECONOMICS EXPECTED VALUE EXPORTS FINANCIAL CONTRACTS FINANCIAL INTERMEDIARIES FINANCIAL MANAGEMENT FINANCIAL SECTOR GDP GDP PER CAPITA GROWTH RATE INFLATION INSURANCE INTERNATIONAL TRADE INVESTMENT CLIMATE LESS DEVELOPED COUNTRY MARKET COMPETITION MARKET POWER MONETARY POLICY MONOPOLY MORAL HAZARD PRICE DISCRIMINATION PRICE INCREASE PRICE REGULATION PRODUCT QUALITY PRODUCTION COSTS PROPERTY RIGHTS PURCHASING REAL GDP REGRESSION ANALYSIS RETAIL RISK EXPOSURE SALE SALES SMALL BUSINESS SUBSTITUTES SUPPLIER SUPPLIERS TOTAL SALES TRADE CREDIT TRADE CREDITORS WORKING CAPITAL ACCOUNTING AFFILIATED ORGANIZATIONS ASYMMETRIC INFORMATION BORROWING BORROWING CONSTRAINTS CENTRAL BANK COMMERCIAL CREDIT COMPETITIVENESS CONSUMER SURPLUS DEBT DOMESTIC MARKET ECONOMIC PERFORMANCE ECONOMICS EXPECTED VALUE EXPORTS FINANCIAL CONTRACTS FINANCIAL INTERMEDIARIES FINANCIAL MANAGEMENT FINANCIAL SECTOR GDP GDP PER CAPITA GROWTH RATE INFLATION INSURANCE INTERNATIONAL TRADE INVESTMENT CLIMATE LESS DEVELOPED COUNTRY MARKET COMPETITION MARKET POWER MONETARY POLICY MONOPOLY MORAL HAZARD PRICE DISCRIMINATION PRICE INCREASE PRICE REGULATION PRODUCT QUALITY PRODUCTION COSTS PROPERTY RIGHTS PURCHASING REAL GDP REGRESSION ANALYSIS RETAIL RISK EXPOSURE SALE SALES SMALL BUSINESS SUBSTITUTES SUPPLIER SUPPLIERS TOTAL SALES TRADE CREDIT TRADE CREDITORS WORKING CAPITAL Van Horen, Neeltje Customer Market Power and the Provision of Trade Credit : Evidence from Eastern Europe and Central Asia |
| description |
Statistics show that the sale of goods
on credit is widespread among firms even when they are
capital constrained and thus face relatively high costs in
providing trade credit. This study provides an explanation
for this by arguing that customers who possess strong market
power are able to increase their customer surplus by
demanding to purchase the goods on credit. This gain in
customer surplus increases with the degree of asymmetric
information between buyer and seller with respect to product
quality. Therefore, firms that are perceived as risky are
especially subject to the market power of the customer and
have to sell their goods on credit. Using detailed
firm-level data from a large number of firms in Eastern
Europe and Central Asia, this study finds evidence
consistent with this hypothesis. It finds a strong positive
correlation between customer market power and trade credit
provision. Furthermore, this relationship is especially
strong when the supplier is more risky and in countries with
limited financial sector development or a weak legal system. |
| topic_facet |
ACCOUNTING AFFILIATED ORGANIZATIONS ASYMMETRIC INFORMATION BORROWING BORROWING CONSTRAINTS CENTRAL BANK COMMERCIAL CREDIT COMPETITIVENESS CONSUMER SURPLUS DEBT DOMESTIC MARKET ECONOMIC PERFORMANCE ECONOMICS EXPECTED VALUE EXPORTS FINANCIAL CONTRACTS FINANCIAL INTERMEDIARIES FINANCIAL MANAGEMENT FINANCIAL SECTOR GDP GDP PER CAPITA GROWTH RATE INFLATION INSURANCE INTERNATIONAL TRADE INVESTMENT CLIMATE LESS DEVELOPED COUNTRY MARKET COMPETITION MARKET POWER MONETARY POLICY MONOPOLY MORAL HAZARD PRICE DISCRIMINATION PRICE INCREASE PRICE REGULATION PRODUCT QUALITY PRODUCTION COSTS PROPERTY RIGHTS PURCHASING REAL GDP REGRESSION ANALYSIS RETAIL RISK EXPOSURE SALE SALES SMALL BUSINESS SUBSTITUTES SUPPLIER SUPPLIERS TOTAL SALES TRADE CREDIT TRADE CREDITORS WORKING CAPITAL |
| author |
Van Horen, Neeltje |
| author_facet |
Van Horen, Neeltje |
| author_sort |
Van Horen, Neeltje |
| title |
Customer Market Power and the Provision of Trade Credit : Evidence from Eastern Europe and Central Asia |
| title_short |
Customer Market Power and the Provision of Trade Credit : Evidence from Eastern Europe and Central Asia |
| title_full |
Customer Market Power and the Provision of Trade Credit : Evidence from Eastern Europe and Central Asia |
| title_fullStr |
Customer Market Power and the Provision of Trade Credit : Evidence from Eastern Europe and Central Asia |
| title_full_unstemmed |
Customer Market Power and the Provision of Trade Credit : Evidence from Eastern Europe and Central Asia |
| title_sort |
customer market power and the provision of trade credit : evidence from eastern europe and central asia |
| publisher |
World Bank, Washington, DC |
| publishDate |
2007-07 |
| url |
http://documents.worldbank.org/curated/en/2007/07/7965080/customer-market-power-provision-trade-credit-evidence-eastern-europe-central-asia https://hdl.handle.net/10986/7477 |
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AT vanhorenneeltje customermarketpowerandtheprovisionoftradecreditevidencefromeasterneuropeandcentralasia |
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1807156332452642816 |