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Trade credit and bank credit : evidence from recent financial crises
 
Author:Love, Inessa; Preve, Lorenzo A.; Sarria-Allende, Virginia; Collection Title:Policy, Research working paper ; no. WPS 3716
Country:Mexico; Korea, Republic of; Philippines; Malaysia; Indonesia; Thailand; Date Stored:2005/09/13
Document Date:2005/09/01Document Type:Policy Research Working Paper
SubTopics:Environmental Economics & Policies; International Terrorism & Counterterrorism; Economic Theory & Research; Banks & Banking Reform; Financial IntermediationLanguage:English
Region:East Asia and Pacific; Latin America & CaribbeanReport Number:WPS3716
Volume No:1 of 1  

Summary: The authors study the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. They find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. The authors 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. The results are consistent with the "redistribution view" of trade credit provision, in which bank credit is redistributed by way of trade credit by the firms with stronger financial position to the firms with weaker financial stand

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