Trade Credit and the Stability of Supply Chains
We show that firms affected by natural disasters extend more trade credit to their customers, especially if these customers are important and would find it easy to replace the affected firm. The suppliers of affected firms appear to facilitate the trade credit provision by extending more trade credit to the affected firms, especially if the relationship with the affected firm is important for them. Thanks to trade credit provision, supply chains appear to be stable after natural disasters. Customers of affected firms are likely to recur to new suppliers and to sever their relationships with the affected firms only when they do not receive more trade credit, because the affected firms and their suppliers are financially constrained.
SMU Cox: Finance (Topic)