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Product Risk, Asymmetric Information, and Trade Credit
Abstract
The purpose of this paper is to explain cross-sectional variations in trade credit terms across firms and industries. This study shows that there is a separating equilibrium in which the size of the cash discount conveys information about product quality. The driving forces of this equilibrium outcome are the risk-sharing motives of the producer and buyer as well as asymmetric information about product quality. The empirical implications of the model are derived and discussed in relation to industry practices.
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Citations
Cited by
Trade credit, financial intermediary development and industry growth
Fisman, R., & Love, I. (2003) · The Journal of Finance · doi:10.1111/1540-6261.00527 · Cited by 1,052
What You Sell Is What You Lend? Explaining Trade Credit Contracts
Giannetti, M., Burkart, M., & Ellingsen, T. (2011) · Review of Financial Studies · doi:10.1093/rfs/hhn096 · Cited by 938
Working capital management, corporate performance, and financial constraints
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014) · Journal of Business Research · doi:10.1016/j.jbusres.2013.01.016 · Cited by 608
Credit chains and bankruptcy propagation in production networks
Battiston, S., Delli Gatti, D., Gallegati, M., Greenwald, B., & Stiglitz, J. E. (2007) · Journal of Economic Dynamics and Control · doi:10.1016/j.jedc.2007.01.004 · Cited by 316
Trade Credit, Relationship-specific Investment, and Product Market Power
Dass, N., Kale, J. R., & Nanda, V. (2015) · Review of Finance · doi:10.1093/rof/rfu038 · Cited by 303
Metadata
- Authors
- Lee, Y. W., & Stowe, J. D.
- Venue
- The Journal of Financial and Quantitative Analysis
- Publisher
- JSTOR
- Published
- 1993-06
- Volume
- 28
- Issue
- 2
- Pages
- 285
- ISSN
- 0022-1090 (ISSN-L)
- OpenAlex
- W2038273313
- Cited by
- 453
- References
- 0
- FWCI
- 9.20
- Type
- journal article
- Language
- en
- Open access
- closed
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- CoChat. (2026). Citation check: Product Risk, Asymmetric Information, and Trade Credit. https://app.cochat.ai/papers/10.2307/2331291
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- Lee, Y. W., & Stowe, J. D. (1993). Product Risk, Asymmetric Information, and Trade Credit. The Journal of Financial and Quantitative Analysis. https://doi.org/10.2307/2331291
Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
