publication . Other literature type . Article . 1987

Trade Credit and Informational Asymmetry

Janet Kiholm Smith;
Open Access
  • Published: 01 Sep 1987
  • Publisher: Wiley
Abstract
Commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held. By offering trade credit, a seller can identify prospective defaults more quickl y than if financial institutions were the sole providers of short-ter m financing. The information is valuable in cases where a seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments. Copyright 1987 by American Finance Association.
Subjects
ACM Computing Classification System: ComputingMilieux_COMPUTERSANDSOCIETY
free text keywords: Economics and Econometrics, Accounting, Finance, Credit note, Credit default swap, Credit crunch, Trade credit, Economics, Credit event, business.industry, business, Credit reference, Credit history, Credit risk
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