Do Bank Bailouts Affect the Provision of Trade Credit?
43 Pages Posted: 16 Nov 2018 Last revised: 17 Mar 2019
Date Written: October 25, 2018
We document that borrowers of banks that received capital support under TARP/CPP significantly increased their quarterly provision of trade credit (accounts receivable) during the crisis by 5.2 percent, while borrowers of other banks did not. The effect is strongest in 2008Q4, and larger for pre-crisis riskier, growth-oriented and bank-dependent firms and for firms that borrow from pre-crisis smaller, less profitable and better capitalized CPP banks. Our difference-in-differences analysis shows that the effect is caused by CPP and not by heterogeneity between firms, banks and time periods. Our study provides novel evidence that suggests a beneficial multiplier effect of bank bailouts.
Keywords: Trade credit, TARP, bank dependence, credit chains, financial crises
JEL Classification: G20, G30, G32
Suggested Citation: Suggested Citation