Substitution Effects in SME finance

50 Pages Posted: 15 Mar 2015 Last revised: 20 Dec 2018

See all articles by Lars Norden

Lars Norden

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

Stefan van Kampen

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

Manuel Illueca Muñoz

Universitat Jaume I

Date Written: March 20, 2018

Abstract

We investigate whether SMEs with demand for credit increase their trade credit usage after they experience a negative shock to bank credit. We base our analysis on a large sample of SMEs from the five biggest European 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 moderate financial constraints are the most likely to substitute. We confirm these results on a subsample with matched bank-firm data. The evidence highlights the limits of substitution in SME finance.

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

JEL Classification: G1, G20, G30, G32

Suggested Citation

Norden, Lars and van Kampen, Stefan and Illueca Muñoz, Manuel, Substitution Effects in SME finance (March 20, 2018). Available at SSRN: https://ssrn.com/abstract=2578291 or http://dx.doi.org/10.2139/ssrn.2578291

Lars Norden

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

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

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

Manuel Illueca Muñoz

Universitat Jaume I ( email )

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

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