and CRD Association

Using a large sample of financially distressed small firms in Credit Risk Database, we find that a distressed firm is more likely to go bankrupt faster if it uses more trade credits proportionately. Also, there is a sharp decrease in the ratio of trade payables to total debts before a distressed firm goes bankrupt. This suggests that coordination failure among a large number of dispersed trade creditors contributes to short survival of distressed firms. And, this finding is in support of the hypothesis that suppliers have incentives and also are able to acquire credit information of the distressed firm faster than banks and thus withdraw credits quickly because trade credits usually are unsecured unlike bank loans