Interaction Between Trade Credit And Debt: Evidence From The Italian Market

Abstract

Trade credit and trade debt choices are strictly interconnected, and some drivers of one of these features are common. The literature looks prevalently at the main reason behind each choice while considering the credit and debt features separately. Only a few articles consider the two features jointly to focus on the correlation between the two types of decisions. Using an approach adopted in the literature to study other topics, we analyze the interaction between trade credit and debt to identify the primary driver of trade policy decision. This study considers the amount of credit and debt and the duration of credit and debt delays while looking at contemporaneous and one-year-lagged relationships. Looking at a worldwide leading market for trade credit (Italy), the paper points out that the relationship could not be clearly identified for the duration terms and that it lags by one year when the amount of credit is taken into account.