Financial Shocks in Production Chains
Hyun Song Shin, Sebnem Kalemli-Ozcan, Se-Jik Kim, Bent Sorensen, and Sevcan Yesiltas ,
Working paper

Interlocking balance sheets through accounts receivable and accounts payable provides incentives necessary to sustain long production chains. We construct a model of incentives in production chains which has the implication that upstream firms in the chain have higher accounts receivable. Further, the working capital of upstream firms are relatively more sensitive to the availability of credit.

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