Trade Credit and Supplier Networks as a Disciplining Mechanism
Rimmy Tomy, Assistant Professor of Accounting
In economies where formal market institutions such as courts and auditing and financial reporting systems function poorly, how do suppliers assess borrower credit risk and extend trade credit? In the proposed study we aim to explore the role of non-market institutions (supplier social networks) on access to and terms of trade credit. Our study is set in a large and organized market in the north- eastern part of India. Suppliers from various ethnic communities operate in this market, and provide trade credit to retailers. Suppliers share borrower-specific information within their networks, such as past defaults and profitability of retailers’ businesses. Through the use of survey-based techniques, and by exploiting historical variation in the strength of supplier networks, we aim to assess whether supplier social networks have a disciplining effect on borrowers.
Community Membership and Reciprocity in Lending: Evidence from Informal Markets (with Regina Wittenberg-Moerman), Journal of Accounting and Economics, 2024.