Interfirm Relationships and Informal Credit in Vietnam

Trading relations in Vietnam's emerging private sector are shaped by two market frictions: the difficulty of locating trading partners and the absence of legal enforcement of contracts. Examining relational contracting, we find that a firm trusts its customer enough to offer credit when the cus...

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Bibliographic Details
Published in:The Quarterly journal of economics 1999-11, Vol.114 (4), p.1285-1320
Main Authors: McMillan, John, Woodruff, Christopher
Format: Article
Language:English
Subjects:
Alliances
Bank credit
Bank loans
Business structures
Case studies
Commercial credit
Credit
Credit policy
Customers
Economic models
Family members
Foreign operations
Influence
Manufacturing industries
Marketing strategies
Practice
Private sector
Social networking
Statistical analysis
Studies
Trade credit
Trading companies
Usages of trade
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Summary:Trading relations in Vietnam's emerging private sector are shaped by two market frictions: the difficulty of locating trading partners and the absence of legal enforcement of contracts. Examining relational contracting, we find that a firm trusts its customer enough to offer credit when the customer finds it hard to locate an alternative supplier. A longer duration of trading relationship is associated with larger credit, as is prior information gathering. Customers identified through business networks receive more credit. These network effects are enduring, suggesting that networks are used to sanction defaulting customers.
ISSN:0033-5533
1531-4650
DOI:10.1162/003355399556278