Are Trade Creditors Relationship Lenders?

Abstract:     
Despite the importance of the hypothesis that trade creditors may act as relationship lenders, it has been virtually impossible to directly test this hypothesis because of a lack of data. We attempt to overcome this problem by using a relatively new Japanese database on small and midsized enterprises (SMEs) that contains information on the strength of the buyer-seller relationship. We find some evidence that trade creditors may be relationship lenders. However, we also find evidence that trade creditors may be financial statement lenders. Our results are generally quite sensitive to model specification in both our quantity and terms of credit regressions. Thus, our results can only be viewed as suggestive of the possibility that trade creditors acquire private soft information over time and use this information to set the terms of trade financing.

Number of Pages in PDF File: 33

Keywords: Trade Credit, Relationship Lending, Credit Availability, Information Accumulation, Bank Loan

JEL Classification: G32, G21, L14, L13, L22

working papers series