Education

PhD expected May 2024
B.A. Mathematics, Economics. Ohio Wesleyan University, 2016
M.A. Economics, University of Virginia, 2019

Job Market Paper

Business Relationships, Trade Credit, and Idiosyncratic Shocks

Short Abstract

Business Relationships, Trade Credit, and Idiosyncratic Shocks 
October 11, 2023 
Abstract 

This paper presents a model of the joint determination of trade credit and business relation­ships and shows how they responded to the supply-chain disruptions in the Covid-19 pandemic. In a frictional, decentralized market for inputs, final-good retailers and input suppliers form durable business relationships, which support endogenous trade credit through punishment. Retailers who default lose access to inputs and forego production while searching for a new match. Using corporate 10-K disclosures of business relationships, along with financial data from Compustat, the model is calibrated to match 2019 data on trade credit and matching: trade credit finances between 50% and 66% of business-to-business sales and matching rates are 32% annually. In 2020 and 2021, business relationships were destroyed at 13% and 21 % higher rates than the ten-year average. As a result of elevated relationship risk, model-predicted business-to-business sales decline 37% and output declines 23% in 2020. Had trade credit not declined, counterfactual business-to-business sales and output would have only fallen 16.8% and 7.9%, respectively. In total, the tightening of trade credit for 10-K firms cost $147b in business­to-business sales and $268b in output (1.3% of U.S. GDP in 2020). 

Keywords: business relationships, trade credit 
JEL Classification: L14, G32