How Do Firms Choose between Intermediary and Supplier Finance?

52 Pages Posted: 12 Dec 2007

See all articles by Dimitar Antov

Dimitar Antov

Northwestern University - Department of Economics

Christina Atanasova

Simon Fraser University (SFU)

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Abstract

We examine the dynamics of firm's choice of short-term financing between intermediated loans and trade credit. We argue that trade credit facilitates the access to and improves the terms of conventional loans. We model the idea that trade credit is a favorable signal of the creditworthiness of the borrower. Hence, some firms will use trade credit in addition to conventional institutional loans despite its higher cost. Our empirical results support the predictions of the theoretical model we develop. We show that firms with high agency costs rely heavily on supplier financing. For these firms trade credit has a significant positive effect on the level of intermediated borrowing.

Suggested Citation

Antov, Dimitar and Atanasova, Christina, How Do Firms Choose between Intermediary and Supplier Finance?. Paris December 2007 Finance International Meeting AFFI-EUROFIDAI Paper. Available at SSRN: https://ssrn.com/abstract=1069875 or http://dx.doi.org/10.2139/ssrn.1069875

Dimitar Antov (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

Christina Atanasova

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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