The 7 reference contexts in paper Christopher F. Baum, Mustafa Caglayan, Neslihan Ozkan (2003) “The Impact of Macroeconomic Uncertainty on Trade Credit for Non-Financial Firms” / RePEc:boc:bocoec:566

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    Use of trade credit helps firms reduce their transaction costs. Also, firms that experience limited access to external financial sources, such as banks and other financial intermediaries, are likely to turn to their suppliers for trade credit. For example,
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    Petersen and Rajan (1997)
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    showed that firms experiencing credit rationing tend to use more trade credit. Nielsen (2002) pointed out that, during periods of monetary tightening, firms which are likely to be bank–credit constrained react by increasing their use of trade credit.
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    Also, firms that experience limited access to external financial sources, such as banks and other financial intermediaries, are likely to turn to their suppliers for trade credit. For example, Petersen and Rajan (1997) showed that firms experiencing credit rationing tend to use more trade credit.
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    Nielsen (2002)
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    pointed out that, during periods of monetary tightening, firms which are likely to be bank–credit constrained react by increasing their use of trade credit. In this paper, we argue that an increase in macroeconomic volatility might sharpen information asymmetry problems and cause severe restrictions to firms’ access to external finance from intermediaries.
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    Section 2 discusses motives for trade credit use and reviews the related literature. Section 3 presents our measure of macroeconomic uncertainty, while Section 4 describes the data and discusses our empirical findings. Finally, Section 5 concludes. 1Beaudry et al. (2001),
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    Baum et al. (2002a) and Baum et al. (2002b)
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    investigate the effects of uncertainty on investment, bank lending and cash holding behavior, respectively. 3 2 Motives for Trade Credit Use There are two major motives for trade credit use: the transactions motive and the finance motive.
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    2002a) and Baum et al. (2002b) investigate the effects of uncertainty on investment, bank lending and cash holding behavior, respectively. 3 2 Motives for Trade Credit Use There are two major motives for trade credit use: the transactions motive and the finance motive. According to the transactions theory of trade credit, firms can economize on the joint costs of exchange by using trade credit
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    (Ferris, 1981).
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    Trade credit use permits the exchange of goods to be separated from the immediate use of money. In doing so, trade credit transforms an uncertain stream of money payments into a sequence that can be known with certainty.
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    Thus, as macroeconomic uncertainty increases, the transactions motive for trade credit use would be expected to strengthen. According to the financing motive, imperfect capital markets enable suppliers to finance buyer firms at a lower cost than can financial institutions (see, for example,
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    Schwartz (1974), Smith (1987)),
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    mitigating the credit rationing a firm may experience in financial markets. One possible impact of macroeconomic uncertainty on firms could be to induce more severe problems of asymmetric information, which can severely limit firms’ access to capital markets.
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    and fit a generalized ARCH (GARCH(2,2)) model to the deviations of the series from an exponential trend, where the mean equation is an AR(1) model.3The conditional variance derived from this GARCH model, averaged to annual frequency, is then used as our measure of macroeconomic uncertainty (ˆht). 2Althoughˆhtis a generated regressor, the coefficient estimates for equation (1) are consistent; see
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    Pagan (1984, 1986).
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    3Details of the estimated GARCH model are available upon request. 5 4 Empirical findings 4.1 The data We use the COMPUSTAT Industrial Annual database of U.S. non-financial firms for testing our hypothesis.
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    An increase in macroeconomic uncertainty might sharpen information problems causing more restrictions in their access to capital market. As a result, they would be more likely to demand trade credit from suppliers.
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    Petersen and Rajan (1997)
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    find that suppliers appear to have an advantage in financing growing firms, especially if their credit 8 quality is suspect. They provide several reasons for this. First, high–growth firms might be a major source of business, and suppliers would be willing to provide credit while expecting to capture this business.
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