Trade credit and bank credit : evidence from recent financial crises

By Inessa Love, Lorenzo A. Preve, Virginia Sarria-Allende. 2005

744 citations recorded by the source corpus.

The authors study the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. They find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. The authors observe that firms with weaker financial position (for example, high pre-crisis level of short-term debt and low cash stocks and cash flows) are more likely to reduce trade credit provided to their customers. This suggests that the decline in aggregate credit provision is driven by the reduction in the supply of trade credit, which follows the bank credit crunch. The results are consistent with the"redistribution view"of trade credit provision, in which bank credit is redistributed by way of trade credit by the firms with stronger financial position to the firms with weaker financial stand

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/2d6cddd890741a9004d11868bae55140a76833f5

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. C. O’Toole
2. E. Casey
3. V. Dang
4. Ying Ge
5. Jiaping Qiu
6. Yomna Abdulla
7. Alan C. Spearot
8. Judit Montoriol-Garriga

In Economics and Econometrics

1. Ying Ge
2. Jiaping Qiu
3. Yomna Abdulla
4. E. Casey
5. Alan C. Spearot
6. Judit Montoriol-Garriga
7. Emilia Garcia-Appendini
8. C. O’Toole

Citations in the corpus

• Bank lending constraints, trade credit and alternative financing during the financial crisis: Evidence from European SMEs (2014, background): “Finally, our research bears some connection to the work of Love et al. (2007) who test the effects of trade credit during financial crises in East Asia.”
• Economic Policy Uncertainty and Capital Structure Choice: Evidence from China (2015, methodology): “8 capture the growth opportunity as in Rajan and Zingales (1995) and Huang and Song (2006) among others due to the non-tradable shares issue mentioned above, and instead we use the sales growth rate as a proxy following Petersen and Rajan (1997) and Love et al. (2007).”
• Firms as liquidity providers: Evidence from the 2007–2008 financial crisis (2013, result): “This finding is consistent with Love et al. (2007) who show that in severe financial crisis trade credit collapses in response to an aggregate contraction in bank credit.”
• Do Firms Use the Trade Credit Channel to Manage Growth? (2013, neutral): “As explained by Marotta (2005), the initial terms of payment are usually longer for instance in Italy, Spain and Portugal with respect to Nordic countries, the availability of discounts is more limited and often there are no penalties for late payments in the former group of countries.”
• Stock Market Listing and the Use of Trade Credit: Evidence from Public and Private Firms (2017, background): “In Column (5), we follow recent research (Love et al., 2007; GarciaAppendini and Montoriol-Garriga, 2013) and scale accounts payable by the cost of goods sold.”
• Credit Chains and Sectoral Comovement: Does the Use of Trade Credit Amplify Sectoral Shocks? (2010, background): “Love et al. (2007), also provide evidence that a bank credit crunch affects the availability of liquidity in the form of trade credit by restricting the access to formal finance of firms that previously acted as financial intermediaries and provided trade credit to other firms.”