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Substitution Effects in Private Debt: Evidence from SMEs

51 Pages Posted: 15 Mar 2015 Last revised: 2 Aug 2016

Manuel Illueca Muñoz

Universitat Jaume I

Lars Norden

Brazilian School of Public and Business Administration (EBAPE), Getulio Vargas Foundation (FGV)

Stefan van Kampen

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: August 1, 2016

Abstract

We investigate whether SMEs with demand for debt finance increase trade credit when they experience a negative shock to bank credit. We base our analysis on a large sample of SMEs from the five biggest EU countries. First, SMEs’ ability to substitute largely depends on their credit quality. Second, substitution decreases during the financial crisis of 2007-09. Third, high credit quality firms with intermediate financial constraints are the most likely to substitute. We confirm these results on a subsample with matched bank-firm data. The evidence suggests that substitution in private debt is more difficult than considered in prior research.

Keywords: Bank loans, trade credit, asymmetric information, financial constraints, external finance dependence, financial crisis

JEL Classification: G1, G20, G30, G32

Suggested Citation

Illueca Muñoz, Manuel and Norden, Lars and van Kampen, Stefan, Substitution Effects in Private Debt: Evidence from SMEs (August 1, 2016). Available at SSRN: https://ssrn.com/abstract=2578291 or http://dx.doi.org/10.2139/ssrn.2578291

Manuel Illueca Muñoz

Universitat Jaume I ( email )

Dep. Finance and Accounting
Campus del Riu Sec
Castellón de la Plana, E-12071
Spain
34964387135 (Phone)

Lars Norden

Brazilian School of Public and Business Administration (EBAPE), Getulio Vargas Foundation (FGV) ( email )

Praia de Botafogo, 190
Rio de Janeiro, 22250-900
Brazil
+552137995759 (Phone)

Stefan Van Kampen (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

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