Access to Debt and the Provision of Trade Credit.

This article investigates how improved access to debt markets influences firms’ incentives to provide trade credit, using detailed data on trade credit between U.S. public customer-supplier pairs and exploiting the staggered adoption of antirecharacterization laws (ARLs) that enhance firms’ debt capacity. The main finding is that better access to debt reduces trade credit provision per dollar of sales, particularly toward major, powerful customers, reflecting an improvement in suppliers’ bargaining power rather than a liquidity pass-through effect. Firms affected by ARLs expand and diversify their customer base, invest more in intangible assets and innovation, and become less reliant on dominant customers, which allows them to curtail costly trade credit. Downstream customers receiving less trade credit respond by cutting investment, increasing leverage, and reducing trade credit extended further downstream, indicating negative spillover effects along supply chains. The study’s results highlight the role of creditor rights and bargaining power in shaping trade credit dynamics during normal economic conditions.