We examine customer-supplier relationships and trade financing within a business group. Our findings reveal that business group firms actively trade among themselves and utilize trade financing to assist their affiliates in mitigating operating risks. Compared to stand-alone peers, group firms trading with suppliers from the same group receive greater trade credit, especially when facing difficult sales conditions and cash shortages. Using major natural disasters as a source of exogenous operating shocks, we confirm that groups extend further trade-credit to affiliated firms under such challenging circumstances. Trade financing thus appears to be an important internal capital market allocation mechanism.

Keywords: Business Groups, Supply Chain, Trade Credit, Liquidity