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Inter-firm trade finance in times of crisis, Volume 1
Author:C. Menichini, Anna Maria; Country:World;
Date Stored:2009/11/04Document Date:2009/11/01
Document Type:Policy Research Working PaperSubTopics:Bankruptcy and Resolution of Financial Distress; Access to Finance; Economic Theory & Research; Emerging Markets; Debt Markets
Language:EnglishRegion:The World Region
Report Number:WPS5112Collection Title:Policy Research working paper ; no. WPS 5112
Volume No:1  

Summary: The paper discusses the main features that distinguish inter-firm international trade finance from alternative sources of financing. On the one hand, inter-firm trade finance could help overcome informational problems associated with other lending relationships; on the other, it may contribute to propagate shocks due to the interconnection among firms along credit chains. The paper evaluates the potential effects of a financial crisis on the use of trade credit for firms operating in developing countries. It argues that while the advantages of trade credit might remain largely unexploited due to poor legal institutions, the disadvantages might be exacerbated because of these firms’ greater exposure to a default chain. Based on these arguments, a menu of choices is identified for what policymakers can do to boost firms’ access to inter-firm trade finance in times of crisis.

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