Journal of Financial and Quantitative Analysis Vol. 28 No. 2 1993
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.
- DOI
- 10.2307/2331291
- Volume
- 28
- Issue
- 2
- Pages
- 285
- Sources
- openalex crossref