Trade Credit, Bank Credit and Financial Crisis

23 Pages Posted: 1 Mar 2010

See all articles by Inessa Love

Inessa Love

World Bank - Development Economics Data Group (DECDG)

Rida Zaidi

Fitch Ratings Inc.

Abstract

This paper examines trade credit behavior in a sample of small and medium enterprises in four East Asian countries before and after the financial crisis of 1998. We use a unique dataset that contains detailed data on trade credit amount and contract terms along with data on access to finance. We find that after the crisis, firms constrained in bank finance receive less trade credit in terms of percent of inputs bought on credit and shorter time of repayment. They also reduce credit extension to their customers in terms of quantity and length of time, due to a smaller pool of available finance. Discount terms rise on both receivables and payables. Our evidence does not support the hypothesis that trade credit can substitute for bank credit in times of the crisis, and instead suggests that liquidity shocks are propagated along the supply chains.

Suggested Citation

Love, Inessa and Zaidi, Rida, Trade Credit, Bank Credit and Financial Crisis. International Review of Finance, Vol. 10, Issue 1, pp. 125-147, March 2010. Available at SSRN: https://ssrn.com/abstract=1560181 or http://dx.doi.org/10.1111/j.1468-2443.2009.01100.x

Inessa Love (Contact Author)

World Bank - Development Economics Data Group (DECDG) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/ilove

Rida Zaidi

Fitch Ratings Inc. ( email )

One state street plaza
New York, NY 10004
United States

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