Counter-cyclical substitution between trade credit and bank credit

Huang, Hongtao; Shi, Xiaojun; Zhang, Shunming

doi:10.1016/j.jbankfin.2010.12.009

Cited by 92 publications

(65 citation statements)

References 35 publications

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“…Our research findings contribute to the existing body of knowledge of the redistribution effect that is described so far in the literature in connection with the trade credit channel (Meltzer, 1960;Petersen and Rajan, 1997;Blasio, 2005;Guariglia and Mateut, 2006;Taketa and Udell, 2007;Cull and Morduch, 2007;Love et al, 2007;Huang et al, 2011). We extend this concept of trade credit (simply postponing repayment) into providing loans to other companies with the use of the real transfer of money.…”

Section: Discussionsupporting

confidence: 55%

“…Disturbances in the redistribution mechanism transmitted via trade credit are caused by the worsening financial standing (as a result of the crisis) of traditional providers of this type of credit, i.e., firms with a higher level of short-term debt (Love, Preve and Sarria-Allende, 2007). Trade credit is found to have a positive impact on the real output, the countercyclical pattern of the substitution effect being the spontaneous relaxation of constraints imposed by financial institutions in periods of economic stagnation and is a self-triggering mechanism smoothing liberal crediting policies during periods of rapid growth (Huang, Shi and Zhang, 2011). We extend this concept to lending money to other companies with the use of loans (the real transfer of money) instead of trade credit (simply postponing repayment).…”

Section: Literature Review On Intercorporate Lending and Hypotheses Dmentioning

confidence: 99%

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A Liquidity Redistribution Effect in Intercorporate Lending: Evidence from Private Firms in Poland

Białek‐Jaworska¹,

Faff²,

Zięba³

2020

ERSJ

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Purpose: We examine the mechanism of intercorporate lending outside the business group, and a reaction of capital expenditures (CAPEX) and capital engagement in other firms to shocks in the provision of such loans. We diagnose the causes and effects of intercorporate lending outside the business group. Design/Methodology/Approach: We use panel data from annual reports (balance sheets and income statements) of 4,600 private Polish companies that provided loans to other firms in the period 2003-2014. We apply the vector autoregression panel model for microeconomic data and analysis of Granger causality, impulse response functions, and forecast error variation decomposition to explore the mechanism of intercorporate loan provision. Findings: Non-financial firms provide loans outside the business group through redistribution of their cash holdings generated from operating activity (cash flow) and longterm bank loans. The provision of loans by non-financial enterprises decreases CAPEX, as a result of the absence of free cash flows that were already used for loan provision. Shareholder loans substitute for capital engagement in other firms. Practical Implications: The findings could assist policymakers to notice that emergency borrowings from other companies are being used to defer defaults and introduce a new credit risk into the business sector. Originality/Value: The redistribution effect of cash holdings and money borrowed from banks provided to unrelated firms outside the business group is dangerous for the stability of the financial system due to the risk that these "indirect borrowers" will default.

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Section: Discussionsupporting

confidence: 55%

Section: Literature Review On Intercorporate Lending and Hypotheses Dmentioning

confidence: 99%

A Liquidity Redistribution Effect in Intercorporate Lending: Evidence from Private Firms in Poland

Białek‐Jaworska¹,

Faff²,

Zięba³

2020

ERSJ

View full text Add to dashboard Cite

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“…Fourth, liquidity (CASH) is measured as the ratio of cash to total assets [47,61]. Fifth and finally, we include short-term bank credit (STDEBT), measured as the ratio of short-term debts to total assets [17,62], and long-term bank credit (LTDEBT), measured as the ratio of long-term debts to total assets [63]. Table 4 shows the mean, median, standard deviation, minimum, and maximum for all the variables of the study in the whole sample.…”

Section: Variablesmentioning

confidence: 99%

Trade Credit as a Sustainable Resource during an SME’s Life Cycle

2019

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Inadequate access to finance for small and medium-sized enterprises (SMEs) can present a major impediment to SMEs’ contribution towards driving sustainable economic growth. The aim of this article is to investigate the role of life cycle on SME financing decisions while focusing on trade credit. To this end, we study whether trade credit and its firm-factor determinants differ depending on the stage of life cycle of the SMEs. For the empirical analysis, a sample is employed of manufacturing SMEs operating in 12 European Union countries over the period 2008–2014 and a panel data model with fixed effects is applied. We find that the business life cycle influences trade credit and that this influence is stronger in young firms, although this relation is non-linear across the firms’ life cycle. We further show that the impact of firm-factor determinants on trade credit differs across the business life cycle in terms of magnitude levels. Our results demonstrate that the business life cycle matters when analysing trade credit, and it should therefore be considered when managers and policymakers strive to solve the financial problems of an SME and to consequently incorporate the SME into the sustainable economy.

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“…Huang et al. () set up a mechanism‐design model in which they can show that when firms' production efficiency crosses, a low threshold supplier credits and bank credits are substitutes. This is, according to the authors, almost always the case.…”

mentioning

confidence: 99%

Trade Credits and Bank Credits in International Trade: Substitutes or Complements?

Engemann

Eck²,

Schnitzer³

2014

World Economy

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractTrade credits are an important financing tool for internationally active firms. This is surprising, as trade credits are generally more expensive than bank credits and thus a costly substitute for bank financing. In this paper, we investigate the relation between trade credits and bank credits for exporting firms. We develop a theoretical model and show that trade credits convey a quality signal which reduces the risk of the transaction and may thus facilitate obtaining additional bank credits. Thus, for exporters who are not able to obtain bank credits in the first place, trade credits and bank credits are complements. Using panel data on German manufacturing firms, we provide supportive evidence for our theoretical predictions. For financially unconstrained firms, trade credits and bank credits are substitutes. For financially constrained exporters, instead, trade credits have a significantly positive effect on the availability of bank credits.

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Counter-cyclical substitution between trade credit and bank credit

Cited by 92 publications

References 35 publications

A Liquidity Redistribution Effect in Intercorporate Lending: Evidence from Private Firms in Poland

A Liquidity Redistribution Effect in Intercorporate Lending: Evidence from Private Firms in Poland

Trade Credit as a Sustainable Resource during an SME’s Life Cycle

Trade Credits and Bank Credits in International Trade: Substitutes or Complements?

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