Trade Credit and Bank Credit: Evidence from Recent Financial Crises

34 Pages Posted: 21 Sep 2005

See all articles by Inessa Love

Inessa Love

World Bank - Development Economics Data Group (DECDG)

Lorenzo A. Preve

IAE Business School, Universidad Austral

Virginia Sarria-Allende

IAE Business School - Universidad Austral

Date Written: May 2005

Abstract

This paper studies the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. We find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. We observe that firms with weaker financial position (for example, high pre-crisis level of short-term debt and low cash stocks and cash flows) are more likely to reduce trade credit provided to their customers. This suggests that the decline in aggregate credit provision is driven by the reduction in the supply of trade credit, which follows the bank credit crunch. Our results are consistent with the "redistribution view" of trade credit provision, in which bank credit is redistributed via trade credit by the firms with stronger financial position to the firms with weaker financial stand.

Suggested Citation

Love, Inessa and Preve, Lorenzo A. and Sarria-Allende, Virginia, Trade Credit and Bank Credit: Evidence from Recent Financial Crises (May 2005). World Bank Policy Research Working Paper No. 3716. Available at SSRN: https://ssrn.com/abstract=806285

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

Lorenzo A. Preve

IAE Business School, Universidad Austral ( email )

Mariano Acosta s/n y Ruta 8
CCN°49
Pilar, Buenos Aires 1629
Argentina
+54(2322) 48-1055 (Phone)

HOME PAGE: http://www.iae.edu.ar/LPreve

Virginia Sarria-Allende

IAE Business School - Universidad Austral ( email )

Buenos Aires
Argentina

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