Trade credit, group affiliation and credit contraction: Evidence from the 1997 Korean financia crisis = Trade credit, group affiliation and credit contraction: Evidence from the 1997 Korean financia crisis

다국어 초록 (Multilingual Abstract)

This paper uses unique trade credit information to investigate how the 1997 financia CrISIS shocks affect trade credit behavior in Korea during the crisis and the subsequent financia and corporate reform period. I uncover evidence that cash-rich chaebol firm increased the amount of trade credit provided to clients affiliate with them, while liquid chaebol firm also received more trade credit from non-affiliate suppliers to redistribute the liquidity to their constrained affiliates In addition, constrained chaebol-affiliate firm resorted to trade credit extended by suppliers, irrespective of their affil ation. Non-chaebol firm with large cash holdings provided more liquidity to clients affiliat d with them, while constrained non-chaebols only received more trade credit from suppliers affiliat d with them. The results suggest that trade credit played a crucial role in the internal capital markets of chaebols during the credit crunch and that constrained nonchaebol firm experienced the most severe credit contractions.