Trade Credit, Relationship-Specific Investment, and Product-Market Power

@inproceedings{Dass2015TradeCR,
  title={Trade Credit, Relationship-Specific Investment, and Product-Market Power},
  author={N. D. Hari Dass and Jayant R. Kale and Vikram K. Nanda},
  year={2015}
}
We rely on a model with incomplete contracts and bargaining power to argue that trade credit (TC) can serve as a commitment device for making relationship-specific investments (RSIs). Unlike existing theories, we explain within a single theoretical framework why TC is affected by firms’ bargaining power and by the specialized nature of transacted goods. Using a large panel of publicly listed firms and innovation-based proxies for RSI, we find strong support for the model’s predictions: TC… CONTINUE READING

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