Commodity price risk, supply chain, and lending

This paper examines the effects of recurring commodity price shocks on supply chains, focusing on oil price fluctuations. We find that affected firms receive less liquidity from suppliers while extending more liquidity to customers to retain them, which further aggravates their financial conditions. We also find that firms extend more trade credit to customers when the lock-in effect is stronger that is when relationships with suppliers are more stable and long-term, and when they are more innovative. Finally, our results indicate that banks impose higher spreads on firms with greater exposure to oil price shocks. Overall, our findings suggest that firms exposed to oil price shocks face greater trade credit liquidity issues and more expensive access to the debt market.