<p>When reading a <strong><a href="http://gofman.info/TC/Trade_Credit.pdf" rel="nofollow noreferrer">recently published paper</a></strong>, I saw the paragraph</p>
<blockquote>
<p>We construct a sample of over 200,000 supply chains to conduct a
chain-based analysis of trade credit. Our study uncovers novel
stylized facts about trade credit both within and across supply
chains. More upstream firms borrow more from suppliers, lend more to
customers, and hold more net trade credit. This upstreamness effect in
trade credit is weaker for more profitable firms and for longer
chains. Firms in more central or more profitable chains provide more
net trade credit. Our results are generally consistent with the
<strong>recursive moral hazard theory of trade credit</strong>. Evidence for the
<strong>financing advantage theory</strong> is mixed.</p>
</blockquote>
<p>Can I ask what does &quot;<strong>recursive moral hazard theory of trade credit</strong>&quot; and what is &quot;<strong>financing advantage theory</strong>&quot;?</p>
<p>The short description here is still ambiguous to me about the meaning</p>
<blockquote>
<p>The recursive moral hazard theory of trade credit describes a steady
state equilibrium of incentives along the supply chain</p>
</blockquote>

CC BY-SA 4.0
2021-06-17T07:11:38.180Z
Have you looked at the references? The recursive moral hazard theory of trade credit seems to refer to a 2012 paper by Kim and Shin.
Michael Greinecker
CC BY-SA 4.0
2021-06-17T07:18:43.377Z
For financing advantage theory, there seem to be more papers starting with a 1974 paper by Schwartz.
Michael Greinecker
<theory>
What is the "recursive moral hazard theory" of "trade credit"?
Phil Nguyen
# What is the "recursive moral hazard theory" of "trade credit"?

(Asked by: username_0 on 2021-06-08)

When reading a **[recently published paper](http://gofman.info/TC/Trade_Credit.pdf)**, I saw the paragraph

> We construct a sample of over 200,000 supply chains to conduct a
> chain-based analysis of trade credit. Our study uncovers novel
> stylized facts about trade credit both within and across supply
> chains. More upstream firms borrow more from suppliers, lend more to
> customers, and hold more net trade credit. This upstreamness effect in
> trade credit is weaker for more profitable firms and for longer
> chains. Firms in more central or more profitable chains provide more
> net trade credit. Our results are generally consistent with the
> **recursive moral hazard theory of trade credit**. Evidence for the
> **financing advantage theory** is mixed.

Can I ask what does "**recursive moral hazard theory of trade credit**" and what is "**financing advantage theory**"?

The short description here is still ambiguous to me about the meaning

> The recursive moral hazard theory of trade credit describes a steady
> state equilibrium of incentives along the supply chain

**Tags:** theory
> **Comments:**
> **username_1**: Have you looked at the references? The recursive moral hazard theory of trade credit seems to refer to a 2012 paper by Kim and Shin.  
> **username_1**: For financing advantage theory, there seem to be more papers starting with a 1974 paper by Schwartz.  

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## 0 answers

