Discrimination in the payments chain

Abstract

We examine whether discrimination affects customers’ willingness to pay their suppliers. Using a dataset of detailed trade credit networks, we find that when facing a macroeconomic shock, customers delay payments to their suppliers with female or black trade credit officers at a 10%–20% higher rate relative to their payments to non-minorities. These results hold after controlling for a host of economic differences between minority groups and non-minority groups. In particular, we exploit the complexity of the supply chain network – wherein suppliers transact with multiple customers in each month and customers transact with multiple suppliers in each month – to estimate within-relationship changes in payment behavior during periods of financial hardship. Results indicate that the largest increases in payment delays are between customers that are classified as having racial or gender biases and suppliers that have minority lead credit officers. The results suggest that biased beliefs and preferences play a critical role in trade credit.