Trade Credit, Financial Intermediary Development and Industry Growth

By Raymond J. Fisman, Inessa Love. 2001

1,135 citations recorded by the source corpus.

Recent work suggests that financial development is important for economic growth, since financial markets more effectively allocate capital to firms with high value projects. For firms in poorly developed financial markets, implicit borrowing in the form of trade credit may provide an alternative source of funds. We show that industries with higher dependence on trade credit financing exhibit higher rates of growth in countries with weaker financial institutions. Furthermore, consistent with barriers to trade credit access among young firms, we show that most of the effect that we report comes from growth in the size of preexisting firms.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/3300b195eb74757210b6c1659c6fbefd780aa4ac

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Citations in the corpus

Do Firms Use the Trade Credit Channel to Manage Growth? (2013, neutral): “By our knowledge, only the work of Fisman and Love (2003) tries to investigate this link.”
A Darker Side to Decentralized Banks: Market Power and Credit Rationing in SME Lending (2012, positive): “…credit is the most important source of external finance for young firms and small and medium enterprises (Berger and Udell, 1998; Robb and Robinson, 2009) and is often a key source of capital helping SMEs to substitute for expensive trade credit (Fisman and Love, 2003; Petersen and Rajan, 1997).”
What you sell is what you lend? Explaining trade credit contracts (2004, positive): “Demirguc-Kunt and Maksimovic (2002) and Fisman and Love (2003) document that firms in countries with weak legal systems rely relatively more on trade credit.”
Do Debt Contract Enforcement Costs Affect Financing and Asset Structure (2014, neutral): “To put the mean value of Short1 in context, Gopalan et al. (2011) find that the average proportion of short-term debt to total debt for a sample of Compustat firms with bond ratings during the time period 1980-2008 to be 19.”
Financial liberalization, financial sector development and growth: Evidence from Malaysia (2007, positive): “This line of argument was later formalized by McKinnon (1973) and Shaw (1973), and popularized by their followers Fry (1988) and Pagano (1993).”
Economic Policy Uncertainty and Capital Structure Choice: Evidence from China (2015, methodology): “Besides the loans from commercial banks, trade credit is an important informal financing channel, especially for firms in developing countries (Petersen and Rajan, 1997; Fisman and Love, 2003).”
Credit Chains and Sectoral Comovement: Does the Use of Trade Credit Amplify Sectoral Shocks? (2010, background): “This assumption was previously used by Fisman and Love (2003), who also provide a series of theoretical and empirical justifications for it, and is consistent with results from Burkart et al. (2007), who show that the provision and use of trade credit in the US is significantly related to the type…”
A Survey Of Recent Developments In The Literature Of Finance And Growth (2008, background): “…in using micro level data to gain more insight into the relationship between financial development and economic growth beyond country-level (see Wurgler, 2000; Cetorelli and Gambera, 2001; Demirguc-Kunt and Maksimovic, 2002; Fisman and Love, 2003; Bertrand et al., 2004; Allen et al., 2005).”