Why is the Inter-firm Credit Market in Korea Special? An Agency View of Trade Credit Use by Chaebols

摘要

We study inter-firm credit (also known as trade credit (TC) or the delayed payment a supplier allows its downstream customer on a product sale) with an emphasis on its unique features in Korea. It is the prominence of chaebol-affiliated firms in the Korean economy that makes Korea unique because chaebol firms are linked together by common ownership and thus distort the assumption common to all theories of TC that the input supplier is independent from its customer. We find several aspects of TC use by chaebols. First, viewed as input purchasers, these firms take more TC (the chaebol effect). The amount of TC taken is positively related to purchases from other chaebol affiliates (the affiliate effect), and with the degree of the chairman's ownership-control disparity (the ownership multiplier effect). Also TC as proportion of short-term debt increases significantly after profit growth (the profit effect). Furthermore, chaebol members give less TC although this is strongly correlated with transactions with affiliates. We suggest a unifying interpretation of these patterns based on agency cost: TC, by substituting for external financing and reducing monitoring by outsiders, presents controlling minority owners the opportunity to misuse their greater control for their own benefit.