RESEARCH
Job Market Paper
“Competition and Inter-Firm Credit: Theory and Evidence from Firm-level Data in Indonesia” (2005) New York University
Trade credit is one of the main sources of
financing for firms in both developing and developed countries. This paper
investigates the relationship between trade credit and suppliers' market
structure. Using a novel firm-level dataset from Indonesia, we find that the
amount of trade credit provided by suppliers increases sharply moving from
monopoly to duopoly, more gradually when oligopolies are present before reaching
a peak and declining steadily with higher competition. More importantly, we find
strong evidence that the jump in trade credit from monopoly to duopoly is driven
by the fact that monopolists are more likely to offer no trade credit to any of
their clients. We provide a theoretical explanation for this anomaly by
constructing a model in which a monopolist is unable to commit ex ante to the
terms of trade credit. This lack of commitment results in a handicap in setting
cash prices. In some case the monopolist is better off offering no trade credit.
However, as competition increases trade credit becomes an important source of
profit and this induces suppliers to increase credit provisions by a
considerable amount.
Working Papers
“Informal Credit and Financial Crisis in Developing Countries:Theory and Empirical Evidence from Trade credit and the Asian Financial Crisis on Indonesian firms” (2005) New York University (in progress)
In this paper I explore the issue of whether informal markets are better equipped to cushion the effect of a financial crisis on borrowers than formal markets, thanks to the same advantages that allow them to overcome some market imperfection in the formal sector. To this end, I study the effect of the Asian Financial Crisis on the trade credit policies of Indonesian firms. A key role is played by the creditor/supplier’s market structure, even if the effect is not obvious a priori. On the one hand, monopolists that extend credit have a stronger incentive to soften the effect of a financial crisis on their clients. This is because they can internalize the long-term benefits of helping clients, as monopolists can typically use higher profit margins as a buffer when the cost of bank credit increases. On the other, as I showed in my job-market paper, very often monopolists find it optimal to extend no credit to their clients. Furthermore, the non monotonic relationship between competition and trade credit, found in the same paper, suggests that also the response to the financial crisis is likely to be non linear. In this paper the main question I explore, both at a theoretical and an empirical level, is how these factors interact with each other and with increased default risk during a financial crisis.
“Dynamics of Competition among Microcredit Institutions in Bangladesh. (joint with S. Jain, G. Mansuri, T. Van Bastelaer) (2005) (in progress)
In this paper we investigate the consequences of an increase in competition on lending terms set by incumbent microfinance institutions (MFI). To do so we use a novel dataset that covers a sample of villages in Bangladesh and contains detailed information on active MFIs and their lending policies at the moment of the survey and five years earlier. Over time many villages have experienced a dramatic increase in the number of MFIs operating and, in some cases, the exit of some key player. This dataset offers a unique opportunity to analyze the way MFIs compete and react to the entrance of new competitors. One finding in our preliminary examination seems particularly interesting. A cross section analysis shows that in villages where the level of competition is more intense, the average size of the first loan granted by MFIs to new borrowers is larger than in less competitive markets; looking, instead, at the change of competition over time, we find that incumbents typically decrease the size of the first loan granted to customers after a competitor enters the village. This seems to suggest that the first response by an incumbent to a rise in competition is typically a conservative one, aimed at containing the potentially higher risk brought by a new competitor. Once a first period is passed by and competitors know each other better they move to a new equilibrium that entails a higher loan size. No significant effect is found instead on interest rates and duration of the loan.
“Credit Rationing and Farm Productivity: Evidence from Rural Pakistan” (joint with H. Jacoby and G. Mansuri) (2003) mimeo, World Bank
Publications
“The Efficiency of the Local Public Utilities” (with G. Ciaccio) 2001 in Economia Pubblica No 4 2001, Franco Angeli, Milano (in Italian).
“Capital and Exchange Control in the Mediterranean Countries” (with G. Iuzzolino), presented at the European University Institute, Florence on March 2001. Published in Italian in “Le Economie del Mediterraneo” ed. M. Roccas, G. Gomel, 2001 Banca d’Italia.