MIT Sloan School Prof. Uses Credit2B Data for Analysis on Downstream Impact of the 2007-08 Credit Crisis

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Prof. Anna Costello of MIT Sloan School of Management completes analysis on downstream impact of the financial sector 2007-08 credit crisis using Credit2B industry data.

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CREDIT2B.COM, the leading web-based trade credit community that provides unparalleled intelligence on the financial strength of commercial customers, today announced the release of a research paper by Professor Anna Costello at MIT’s Sloan School of Management on the impact of the 2007-08 financial credit crisis on trade credit trends and exposures. The research is based on Credit2B’s deep industry receivables data from the period before, during and after the recession.

Costello chose Credit2B because of the validity and transparency of its industry data that helped her understand the correlation between the banking crisis in 2007-08 and the downstream effect it had on corporate trade credit. Credit2B quotes recent surveys that indicate inter-firm trade credit exposures total well over $2 trillion of accounts receivable assets globally.

Credit2B believes that the real insight on the risk of default comes from the community intelligence of suppliers that sell on terms to those customers. Costello comments “I believe in their vision of capturing a supplier’s underlying knowledge and trade experiences selling on credit terms to buyers around the world. It is an inherently compelling and scalable model that allows suppliers to create trusted and safe connections with other suppliers around their common business customers."

After six months of analysis of the Credit2B data, Costello was able to correlate the spillover from the 2007-08 banking crisis to the impact on trade credit. According to Costello, “I measured the supplier’s financial constraint as the fraction of long-term debt coming due during the initial phase of the financial crisis, since these suppliers were limited in their ability to refinance their bank debt. Using a difference-in-differences approach, I found that following the shock to bank credit, suppliers in the treatment sample reduced trade credit extended to customers significantly more than the suppliers in the control sample. Further, customers at the lowest end of the credit quality spectrum faced the largest reduction in trade credit. In the two years following the credit crisis, those customers that were rationed credit had a decline in economic activity and a further decline in credit quality.”

This initial partnership between MIT and Credit2B highlighted the direct extent to which financial industry shocks impact trade creditors, trade debtors and their downstream ramifications in defaults. Overall, the results of the paper highlight an important causal channel linking the financial sector to corporate sector outcomes.

Shyarsh Desai, CEO of Credit2B, said “the value of the Credit2B data resides in our uniqueness as a trade supplier system without the dilution created by non-trade commercial experiences. Our technology and analytics leadership team has a deep understanding of trade data and have formed a strong working partnership with Professor Costello to ensure that MIT got the support needed for the work. I know this strategic collaboration will help us define even better predictive risk indicators for the industry from historical data trends." Credit2B has a clear goal to invest in initiatives with top tier institutions that help drive greater financial insights that empower businesses, suppliers, economists, and academia around the world to better forecast trends at a micro and macro level.

About Credit2BTM

Credit2B's cloud technology empowers accurate and timely decisions by connecting the credit experiences of trade suppliers around their common business customers. We combine this with our SNAP™ online credit applications, comprehensive third party data, public filing information and an on-demand credit analyst to provide a complete financial view of risk, all in real time and in one place. We build a personalized dashboard around your credit policy, including performance on applications pipeline, full portfolio monitoring, industry peer benchmarks and comprehensive data integration and credit risk analytics to streamline your needs.

Contact:
Roxanne Nazzaro
646-442-3496
rnazzaro(at)credit2b(dot)com

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Roxanne Nazzaro
Credit2B
+1 646-442-3496
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