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When do trade credit discounts matter? Evidence from Italian firm-level data

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Abstract:

Italian firms are top users of trade credit in an international comparison. The paper offers some clues to the determinants of this stylized fact exploiting the answers of about 1900 manufacturing firms on a wide range of contractual features, separately for domestic and foreign customers. The main finding of the univariate analysis is that, with the almost totality of transactions made on credit, there is no evidence that this way of financing is more expensive than loans. An econometric investigation shows that discounts offered have the expected effect of reducing payment delays mostly for customers located abroad, where customary credit periods are shorter and creditors' rights protection is more effective. The result is consistent with the poor explanatory power of discounts received in regressions for the trade debt period of domestic firms.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/0003684042000329063

Affiliations: Università di Modena e Reggio Emilia Dipartimento di Economia Politica viale Berengario 51 41100 Modena Italy, Email: marotta@unimore.it

Publication date: March 1, 2005

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