TRADE CREDIT EXTENSION THE ROLE OF SUPPLIER COLLATERAL †

ABSTRACT Finance is important for economic growth. This paper analyses one source of finance that has received limited attention in the literature – supplier credit. I explore the hypothesis that the willingness of suppliers to extend trade credit to their buyers depends on the effectiveness of their collateral. I develop a new industry score of collateral effectiveness based on product and technology aspects and find that there is more supplier lending in industries, in which collateral is more effective. This effect is more pronounced in countries where suppliers face a higher risk of defaults, and in those where collateral rights and debt enforcement are better. The results, by extension, suggest an asymmetry in finance provision and access to finance across industries, and may shed light on patterns of industry development across countries. 6432 WORDS PLUS 4 SIDES OF TABLES. † I am grateful to my supervisor for countless helpful comments and to Thomas Steger for his help with understanding and rating the effectiveness of collateral in different industries.- 2