Keywords

trade credit information, bankruptcy recovery rates, creditor signaling behavior

Abstract

Using information on the sales of debt claims for 132 U.S. Chapter 11 bankruptcy cases, we show that large trade creditors’ decisions to sell receivables of a distressed company in bankruptcy are predictive of lower recovery rates, and that in such cases these creditors sell ahead of less informed suppliers and other creditors. This result is especially pronounced for more opaque distressed firms, when trade creditors’ information advantage is likely largest. This evidence shows that suppliers that extend significant amounts of trade credit hold private information about their trade partners. Trade creditors who are geographically closer or in similar industries tend to lend the most, suggesting that these are two channels through which suppliers hold an information advantage.

Original Publication Citation

“Trade Creditors’ Information Advantage,” with Victoria Ivashina.

Document Type

Working Paper

Publication Date

2018

Publisher

NBER Working Paper

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Associate Professor

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