Bank Loan Availability and Trade Credit Demand

This paper investigates the effects of bank loan availability on the trade credit and credit card demand of small firms, using firm‐level data from the 1995 Credit, Banks, and Small Business Survey, conducted by the National Federation of Independent Business. We find that firms increase their demand for trade credit and credit card debt when facing credit constraints imposed by banks. These results provide evidence of a pecking order of debt financing, where firms increase their reliance on potentially expensive sources of funds when bank loans are not available.     

Bank Lending Standards and Access to Lines of Credit

This paper examines how changes in bank lending standards are related to the availability of bank lines of credit for private and comparable public firms. Overall, we find that access to lines of credit is more contingent on bank lending standards for private than for public firms. The impact of bank lending standards is however asymmetric: while private firms are less likely than public firms to gain access to new lines when credit market conditions are tight, we find no difference between public and private firms in terms of their use or retention of pre‐existing lines. We also find that private firms without lines of credit use more trade credit when bank lending standards are tight, which is suggestive of a supply effect. Overall, the evidence suggests that “credit crunches” are likely to have a disproportionate impact on private firms. However, pre‐existing banking relationships appear to mitigate the impact of these contractions on private firms.     

How Do Firms Choose Between Intermediary and Supplier Finance?

This paper examines firms’ short‐term financing choices between intermediated loans and trade credit. I test two sets of empirical hypotheses: 1) hypotheses concerning the cross‐sectional differences in the level of intermediary finance for firms that use different levels of trade credit and 2) hypotheses concerning the dynamics of trade credit growth. I find strong evidence that for firms with high agency costs, the use of trade credit facilitates access to conventional bank loans. The evidence is consistent with theories based on the signaling role of trade credit provision and suppliers’ liquidation advantage.     

Trade credit and bank credit: Evidence from recent financial crises

This paper studies the effect of financial crises on trade credit for a sample of 890 firms in six emerging economies. Although the provision of trade credit increases right after a crisis, it contracts in the following months and years. Firms that are financially more vulnerable to crises extend less trade credit to their customers. We argue that the decline in aggregate trade credit ratios is driven by the reduction in the supply of trade credit that follows a bank credit crunch, consistent with the “redistribution view” of trade credit provision, whereby bank credit is redistributed via trade credit from financially stronger firms to weaker firms.     

Foreign bank entry and firms’ access to bank credit: Evidence from China

This paper studies the impact of foreign bank entry on domestic firms’ access to bank credit using a within-country staggered geographic variation in the policy of foreign bank lending in China. The paper finds that after foreign bank entry profitable firms use more long-term bank loans; whereas firms with higher value of potential collateral do not. It also finds that non-state-owned firms become able to substitute some trade credit with long-term bank loans. The findings suggest that less opaque firms and non-state-owned firms benefit more from foreign bank entry and that collateral may only play a limited role in mitigating the problem of information asymmetry when creditors’ rights are not well protected in a host country.     

Trade Credit,the Financial Crisis,and SME Access to Finance

Mounting evidence indicates that firms, particularly SMEs, suffered from a significant credit crunch during this crisis. We analyze for the first time whether trade credit provided an alternative source of external finance to SMEs during the crisis. Using firm‐level Spanish data we find that credit constrained SMEs depend on trade credit, but not bank loans, and that the intensity of this dependence increased during the financial crisis. Unconstrained firms, in contrast, are dependent on bank loans but not on trade credit.     

Customer concentration and loan contract terms

We study pricing and non-pricing features of loan contracts to gauge how the credit market evaluates a firm’s customer-base profile and supply-chain relations. Higher customer concentration increases interest rate spreads and the number of restrictive covenants featured in newly initiated as well as renegotiated bank loans. Customer concentration also abbreviates the maturity of those loans as well as the relationship between firms and their banks. These effects are intensified by customers’ financial distress, the level of relationship-specific investments, and the use of trade credit in customer–supplier relations. Our evidence shows that a deeper exposure to a small set of large customers bears negative consequences for a firm’s relations with its creditors, revealing limits to integration along the supply chain.     

Bank Funding,Securitization, and Loan Terms: Evidence from Foreign Currency Lending

We examine how bank funding structure and securitization activities affect the currency denomination of business loans. We analyze a unique data set that includes information on the requested and granted loan currency for 99,490 loans granted to 57,464 firms by a Bulgarian bank. Our findings document that foreign currency lending is at least partially driven by bank eagerness to match the currency structure of assets with that of liabilities. Our results also show that loan currency, as well as loan amount and maturity, are adjusted to make loans eligible for securitization.     

The information content of trade credit

During 1992–2007, suppliers financed almost 10% of the total assets of US listed firms. This intensive usage of trade credit is puzzling in the light of its high (implicit) costs. By arguing that trade credit use provides valuable information to outside investors, we first derive a theoretical model that predicts a positive correlation between trade credit use and the quality of the firm’s investments. Then, using several proxies for firm’s investment quality (Z-score, return on assets, and long-run abnormal returns), we show that this prediction receives strong support from a large sample of US firms.     

Asset redeployability and trade credit

We examine the relationship between asset redeployability and firms' use of trade credit. Using a large sample of US public firms, we document that firms with more redeployable assets use significantly less trade credit. Our cross-sectional analyses show that the negative relation between asset redeployability and trade credit is more salient for firms with more financing constraints, high levels of information asymmetry, and less corporate liquidity. These findings remain robust to alternative measures of asset redeployability, trade credit, and alternative regression specifications, and they are not driven by an endogeneity problem. Finally, we find that firms with fewer redeployable assets adjust trade credit to the target level relatively quickly when compared with firms having more redeployable assets. Overall, findings from this study provide robust evidence that asset redeployability has an important bearing on firms' short-term financing.     

Firms as liquidity providers: Evidence from the 2007–2008 financial crisis

Using a supplier–client matched sample, we study the effect of the 2007–2008 financial crisis on between-firm liquidity provision. Consistent with a causal effect of a negative shock to bank credit, we find that firms with high precrisis liquidity levels increased the trade credit extended to other corporations and subsequently experienced better performance as compared with ex ante cash-poor firms. Trade credit taken by constrained firms increased during this period. These findings are consistent with firms providing liquidity insurance to their clients when bank credit is scarce and offer an important precautionary savings motive for accumulating cash reserves.     

Funding Liquidity without Banks: Evidence from a Shock to the Cost of Very Short‐Term Debt

In 2011, Colombia instituted a tax on repayment of bank loans, which increased the cost of short‐term bank credit more than long‐term credit. Firms responded by cutting short‐term loans for liquidity management purposes and increasing the use of cash and trade credit. In industries in which trade credit is more accessible (based on U.S. Compustat firms), we find substitution into accounts payable and little effect on cash and investment. Where trade credit is less available, firms increase cash and cut investment. Thus, trade credit provides an alternative source of liquidity that can insulate some firms from bank liquidity shocks.     

Capital Market Regimes and Bank Structure in Europe

We hypothesize that fundamental features that distinguish European capital markets have predictably influenced emerging national differences in bank capitalization and loan growth. Using bank‐level data from 13 European countries, 1998 to 2004, we find evidence of positive effects of “equity‐friendly” market features on bank capitalization and positive effects of both “equity‐friendly” and “credit‐friendly” market features on loan growth. The findings are strongest in small banks and in banks with cooperative charters. Our results suggest that ongoing and prospective integration of European banking markets is mitigated by relatively static features of the equity and credit markets on which banks rely.     

Ownership discrimination and private firms financing in China

This study examines the financing/funding of private firms in China. Our results show that private firms are significantly less funded through formal financing channels such as bank loans than state-owned firms, and hence have to resort to alternative financing such as trade credit. Consistent with the theoretical expectation and literature, there is a substitution effect between trade credit and bank loans for private firms, but this effect is much weaker compared to that of state-owned firms. Moreover, while the univariate comparisons indicate that private firms obtain more notes payable than state-owned firms, the multivariate regression analyses show that the relation between bank loan and notes payable is positive and indifferent between private and state-owned firms.     

Lending competition and credit availability for new firms: Empirical study with the price cost margin in regional loan markets

In this paper, I present statistical evidence of the impact of lending competition on credit availability for new firms. A discrete-time duration analysis with respect to the years from the start-up to the first loan approval by a commercial bank or a cooperative bank, which is collected from survey data in Japan, shows that the higher price cost margin (PCM) of banks, which reflects the existence of a quasi-rent for a bank, improves the credit availability for younger firms. Additional analysis to detect the regional determinants of the PCM of banks shows that the share of larger banks in each local credit market has a negative and significant impact on the PCM. In light of the existing empirical finding that smaller banks are more likely to provide relationship banking, these findings provide indirect evidence for the hypothesis that the intensity of relationship banking in each local credit market increases the PCM and this encourages banks to extend a loan to new firms so that they can pre-empt the opportunity to establish lending relationships that are expected to yield such quasi-rents.     

Bank Relationships and Firms' Financial Performance: The Italian Experience

We examine the connection between the number of bank relationships and firms' performance using a unique data set on Italian small firms for which banks are a major source of financing. Our evidence indicates that return on equity and return on assets decrease as the number of bank relationships increases with a stronger effect on small firms than large firms. We also find that interest expense over assets increases as the number of relationships increases. Particularly for small firms, these results are consistent with analyses suggesting that fewer bank relationships reduce information asymmetries and agency problems and outweigh hold‐up problems.     

Risk-weighted capital requirements and portfolio rebalancing

We use a 2013 Norwegian policy reform to study how banks react to higher capital requirements and how these adjustments transmit to the real economy. Using bank balance sheet data, we document that banks raise capital ratios by reducing risk-weighted assets. Most of the reduction in risk-weighted assets is accounted for by a reduction in average risk weights. Consistent with this reduction in risk, we document a substantial decline in credit supply to the corporate sector relative to the household sector. We also show that banks react to higher requirements by increasing interest rates, consistent with the reduction in corporate credit growth being supply driven. Using administrative loan level tax data, we document a reduction in lending on the firm level. This is robust to controlling for firm fixed effects, thereby accounting for potential firm-bank matching. Finally, we find that the reduction in bank lending has a negative impact on firm employment growth and that this effect is driven by small firms.     

A Multistage Model of Loans and the Role of Relationships

We develop a multistage model of the loan granting process to understand the contradictory findings of the existing literature on bank‐borrower relationships, credit availability, and loan rates. Upon estimating our model with the 1993, 1998, and 2003 versions of the Survey of Small Business Finances data set, we find that relationships matter in a borrower's decision whether to apply for a loan and in the loan approval/rejection decision by the financial institution. However, the effect of relationships on loan rates depends on the prevailing economic climate. While firms with preexisting relationships obtain credit at lower rates during periods of economic expansion, loan rates are not negatively correlated with preexisting relationships during periods of economic recession.     

AGENT BANK BEHAVIOR IN BANK LOAN SYNDICATIONS

Using Shared National Credit (SNC) Program data from 1995 to 2000, we extend previous empirical work on bank loan syndications. First, we examine recent trends in the volume and examiner‐based credit quality of loans syndicated through the banking system. Second, we estimate a panel regression model to explain changes in an agent bank's retained share of a syndicated loan in terms of information asymmetries, loan credit quality, capital constraints, and loan age and maturity. We find that these variables are significant determinants of the proportion of a SNC loan retained by an agent bank for its portfolio over time.     

A Dynamic Approach to Accounts Receivable: a Study of Spanish SMEs

The main objective of this paper is to extend the literature on the granting of trade credit. The focus is to test whether the accounts receivable decisions follow a model of partial adjustment. To do that, we use a sample of 2,922 Spanish SMEs. Using a dynamic panel data model and employing the GMM method of estimation we control for unobservable heterogeneity and for potential endogeneity problems. The results reveal that firms have a target level of accounts receivable and take decisions in order to achieve that level. In addition, we find that sales growth (if positive), the size of the firms, their capacity to generate internal funds and get short term financing, and economic growth are important in determining trade credit granted by firms.