Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships / Raymond Fisman, Mayank Raturi.

Format:

Book

Author/Creator:

Fisman, Raymond.

Contributor:

National Bureau of Economic Research.

Raturi, Mayank.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9659.

NBER working paper series no. w9659

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

Previous work has claimed that monopoly power facilitates the provision of credit, since monopolists are better able to enforce payment. Here, we argue that if relationship-specific investments are required by borrowers to establish creditworthiness, monopoly power may reduce credit provision because hold up problems ex post will deter borrowers from investing in establishing creditworthiness. Empirically, we examine the relationship between monopoly power and credit provision, using data on the supply relationships of firms in five African countries. Consistent with the upfront investment story, we find that monopoly power is negatively associated with credit provision, and that this correlation is stronger in older supplier relationships. Because the data include several observations per firm, we are able to utilize firm fixed-effects, thus netting out unobserved firm characteristics that may have been driving results in earlier studies.

Notes:

Print version record

April 2003.