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We empirically investigate the proposition that rms charge premia on cash prices in transactions involving trade credit. Using a comprehensive panel dataset on product-level transactions prices and rm characteristics, we relate trade credit issuance to price setting. In a recession characterized by tightened credit conditions, we nd that prices increase signi cantly more on products sold by rms issuing more trade credit, in response to higher opportunity costs of liquidity and counterparty risks. Our results thus demonstrate the importance of trade credit for price setting and show that trade credit issuance induces a channel through which nancial conditions affect prices. (JEL: E31, E32, D22, G30, L11) The editor in charge of this paper was Claudio Michelacci. Acknowledgments: We thank the editor, three anonymous referees, Mikael Carlsson, Tore Ellingsen, Isiah Hull, Stefan Ingves, Simon Kwan, and Greg Udell, as well as seminar and conference participants at the Federal Reserve Bank of San Francisco, the Swiss Finance Institute at the University of Zürich, Nova School of Business and Economics in Lisbon, BI Norwegian Business School, the CREDIT 2018 Conference in Venice, and Sveriges Riksbank for helpful comments and suggestions. This research was partly carried out while Tor Jacobson was visiting the Reserve Bank of Australia and Erik von Schedvin the Federal Reserve Bank of San Francisco. We gratefully acknowledge the hospitality extended by these institutions. Niklas Amberg thanks Jan Wallanders och Tom Hedelius Stiftelse for nancial support. An earlier version of this paper was circulated under the title “Trade Credit and Pricing: An Empirical Evaluation.” The opinions expressed in this article are the sole responsibility of the authors and should not be interpreted as re ecting the views of Sveriges Riksbank. E-mail: niklas.amberg@riksbank.se (Amberg); tor.jacobson@riksbank.se (Jacobson); erik.vonschedvin@riksbank.se (von Schedvin) Journal of the European Economic Association Preprint prepared on 9 January 2020 using jeea.cls v1.0.

Trade Credit and Product Pricing: The Role of Implicit Interest Rates