Do Bank Bailouts Affect the Provision of Trade Credit?

43 Pages Posted: 16 Nov 2018 Last revised: 17 Mar 2019

See all articles by Lars Norden

Lars Norden

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

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Teng Wang

Board of Governors of the Federal Reserve System

Date Written: October 25, 2018

Abstract

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

Norden, Lars and Udell, Gregory F. and Wang, Teng, Do Bank Bailouts Affect the Provision of Trade Credit? (October 25, 2018). Available at SSRN: https://ssrn.com/abstract=3272994 or http://dx.doi.org/10.2139/ssrn.3272994

Lars Norden (Contact Author)

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

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Teng Wang

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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