Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289123 
Year of Publication: 
2022
Citation: 
[Journal:] Cogent Business & Management [ISSN:] 2331-1975 [Volume:] 9 [Issue:] 1 [Article No.:] 2107743 [Year:] 2022 [Pages:] 1-27
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
This paper studies the effect of government contracts on trade credit by using cross-country firm-level data. Trade credit is defined as a firm's deferral of payment to its sellers when it buys material inputs. We apply the instrumental variable to take into account the endogeneity problem caused by the simultaneous relationship between government contracts and trade credit. Our empirical results prove that government contracts have negative effects on trade credit. These effects become more pronounced when firms have higher bargaining power and more severe financial and institutional constraints and are located in middle-income countries. Our results are robust for alternative measures of financial and institutional constraints. These findings have important policy implications: Contracting with the government helps firms to reduce their dependence on trade credit by switching to other cheaper forms of financing, especially in the case of firms with high bargaining power and financial and institutional constraints.
Subjects: 
bargaining power
financial constraints
government contract
institutional constraints
trade credit
JEL: 
F10
G20
L23
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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