@article{16d43ca140c54502a6223db7d15044e2,
title = "Trade credit and cross-country predictable firm returns",
abstract = "We investigate the role of trade credit links in generating cross-border return predictability between international firms. Using data from 43 countries from 1993 to 2009, we find that firms with high trade credit located in producer countries have stock returns that are strongly predictable based on the returns of their associated customer countries. This behavior is especially prevalent among firms with high levels of foreign sales. To better understand this effect we develop an asset pricing model in which firms in different countries are connected by trade credit links. The model offers further predictions about this phenomenon, including stronger predictability during periods of high credit constraints and low uninformed trading volume. We find supportive empirical evidence for these predictions.",
keywords = "Customer-supplier relations, Information asymmetry, International equity markets, Predictability, Trade credit",
author = "Rui Albuquerque and Tarun Ramadorai and Watugala, {Sumudu W.}",
note = "Funding Information: We thank Geert Bekaert, Chandrasekhar B. Bhave, John Campbell, Francesca Carrieri, Fritz C. Foley, Shingo Goto, Tim Jenkinson, Marcin Kacperczyk, Thomas Noe, Michael Plummer, Shrihari Santosh, Ajay Shah, Akiko Watanabe, and Mungo Wilson for useful discussions, and seminar participants at Sa{\"i}d Business School, the Oxford-Man Institute, the University of Rhode Island, the 2012 Inquire Europe Fall Conference, the 2012 London Business School – Trans-Atlantic Doctoral Conference, the Fifth McGill Global Asset Management Conference, the 2011 European Finance Association Conference, the Tenth Annual Darden International Finance Conference, and the National Institute for Public Finance and Policy – Department of Economic Affairs conference on capital flows for comments, and the Oxford-Man Institute for financial support. Views and opinions expressed are ours and do not necessarily represent official Office of Financial Research or US Department of the Treasury positions or policy. Publisher Copyright: {\textcopyright} 2014 Elsevier B.V.",
year = "2015",
month = mar,
day = "1",
doi = "10.1016/j.jfineco.2014.10.007",
language = "English",
volume = "115",
pages = "592--613",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier",
number = "3",
}