Two essays on corporate access to the trade credit market

Abstract

This thesis explores corporate access to a critical source of non-bank financing: the trade credit market. Chapter 1 investigates the relative competitiveness of private versus public firms within this market. Contrary to the conventional view that private firms rely more heavily on trade credit, I find that private firms in the European Union have significantly lower supplier credit ratios than public firms. I posit that public listing strengthens firms’ disclosure commitments, thereby reducing suppliers’ perceived risk and increasing their willingness to extend credit. Exploiting the mandatory adoption of IFRS for public firms as an exogenous shock that reinforces these commitments, I document a significant negative spillover effect on supplier credit allocated to private firms—especially those with higher default risk and greater demand for credit. Notably, this effect cannot be attributed to improved ex-post monitoring through the provision of incremental information. In contrast, regulatory shocks that enhance private firms’ commitment produce negative but comparatively weaker spillover effects on public firms. The resulting reallocation of supplier credit significantly constrains private firms’ investment activity. Overall, these findings suggest that commitment effects, rather than information effects, place private firms at a disadvantage relative to public firms in the trade credit market. Chapter 2 examines the impact of corporate tax policy on trade credit usage. Analyzing corporate income tax variations across U.S. states from 1988 to 2016, we find that trade credit usage declines by 8.7% following tax increases and by 5.6% following tax cuts. Firms also adjust their cash holdings in response to tax changes, with these adjustments closely mirroring the timing and magnitude of trade credit reductions. Our channel analysis suggests that the observed decline in trade credit is primarily explained by increased cash holdings after tax changes. Further, we find that the effects of tax increases are driven by supplier-side factors, while those of tax cuts are driven by customer-side factors. Together, these results provide novel insights into the interplay between corporate taxation and interfirm financing decisions.