Firms as Financial Intermediaries: Evidence from Trade Credit Data

By Asli Demirgüç-Kunt, Vojislav Maksimovic. 2001

393 citations recorded by the source corpus.

The authors argue that non-financial firms act as intermediaries, by channeling short-term funds from the financial institutions in an economy, to their best use. Non-financial firms act in this way because they may have a comparative advantage in exploiting informal means of ensuring that borrowers repay. These considerations suggest that to optimally exploit their advantage in providing trade credit to some classes of borrowers, firms should obtain external financing from financial intermediaries, and markets, when this is efficient. Thus the existence of a large banking system is consistent with these considerations. Using firm-level data for thirty nine countries, the authors compute turnovers in payables, and receivables, and examine how they differ across financial systems. They find that the development level of a country's legal infrastructure, and banking system predicts the use of trade credit. Firms' use of bank debt is higher relative to their use of trade credit in countries with efficient legal systems. Bur firms in countries with large, privately owned banking systems, offer more financing to their customers, and take more financing from them. The authors' findings suggest that trade credit is a complement to lending by financial intermediaries, and should not be viewed by policymakers as a substitute.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/9368443ce5ba0fc3ef775a7cd9811ae08fb37a5e

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Citations in the corpus

Financing patterns of European SMEs – an empirical taxonomy (2016, neutral): “This result indicates that SMEs in market-based countries seem to prefer covering their financing needs with trade credit, leasing or factoring instead of using institutional sources of financing (Demirgüç-Kunt and Maksimovic 2001; Oxford Economics 2011).”
Trade Credit Contracts (2010, neutral): “Introduction Trade credit is an important source of external financing for firms of all sizes (Demirguc-Kunt and Maksimovic 2001).”
What you sell is what you lend? Explaining trade credit contracts (2004, background): “Demirguc-Kunt and Maksimovic (2002) and Fisman and Love (2003) document that rms in countries with weak legal systems rely relatively more on trade credit.”
The Role of Factoring for Financing Small and Medium Enterprises (2005, background): “For example, a study by Demirguc-Kunt and Maksimovic (2002) finds that in 39 countries around the world, trade credit use is higher relative to bank credit in countries with weak legal environments, which make bank contracts more difficult to write.”
Bargaining power and trade credit (2016, background): “Trade credit is an important source of funds for both small and large firms around the world (Petersen and Rajan, 1997; Demirguc-Kunt and Maksimovic, 2002).”
Trade Credit, the Financial Crisis, and SME Access to Finance (2013, neutral): “Demirguç-Kunt and Maksimovic (2001) also emphasize that information about a firm’s customers is potentially valuable and that sellers act on this information to extend credit on terms that are not available from banks.”
Trade Credit Provision and National Culture (2016, background): “Rights from Djankov et al. (2007) to quantify the power of secured lenders in the bankruptcy process granted by a country’s laws and regulations; Information Sharing, a dummy from Djankov et al. (2007) indicating the existence of either a public registry or a private bureau in a given country-year, ”
Creditor Rights and Capital Structure: Evidence from International Data (2014, neutral): “Subsequent studies are subject to similar data issues; Booth, Aivazian, Demirguc-Kunt and Maksimovic (2001) examine only ten developing countries and Giannetti (2003) only eight European countries.”
Public governance and corporate finance: Evidence from corruption cases (2008, neutral): “…a significant part of the corporate financing patterns that are unexplained by firm or industry factors can be explained by country-level institutional factors (Demirguc-Kunt and Maksimovic, 1996, 1998, 1999, 2001; Rajan and Zingales, 1995; Booth et al., 2001; Giannetti, 2003; Fan et al., 2005).”
A more complete conceptual framework for SME finance (2006, background): “Trade credit may be particularly important in economies with weak financial systems, where industries with higher dependence on trade credit exhibit higher growth rates (Demirguc-Kunt and Maksimovic 2002, Fisman and Love 2003).”
Credit channel, trade credit channel, and inventory investment: Evidence from a panel of UK firms (2006, background): “Focusing on the UK rather than on continental European economies is particularly interesting: the UK financial system is in fact mainly market-based, whereas continental European countries are characterized by bank-based financial systems (Demirgüç-Kunt and Maksimovic, 2002). One would expect theref”
Finance and Growth: Theory, Evidence, and Mechanisms (2003, background): “Similarly, while empirical studies focus on measures of the size of banks or stock markets, Petersen and Rajan (1997) and Demirguc-Kunt and Maksimovic (2001) show that firms frequently act as financial intermediaries in providing trade credit to related firms.”