Credit channel,trade credit channel,and inventory investment: Evidence from a panel of UK firms |
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| Affiliation: | 1. University of Bahrain, POB 32038, Sakheer, Bahrain;2. Alliance Manchester Business School, University of Manchester, Manchester M15 6PB, UK;1. Institute of Finance and Economics, Shanghai University of Finance and Economics, China;2. School of Finance and Research Center of Sci&Tech Finance, Jiangxi University of Finance and Economics, No.169 East Shuanggang Road, Nanchang, Jiangxi 330013, China;3. School of Social Development and Public Policy, Fudan University, China;4. Fanhai International School of Finance and School of Economics, Fudan University, Room 520, 5 Building, No 220 Handan Road, Shanghai 200433, China |
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| Abstract: | ![]()
In this paper, we use a panel of 609 UK firms over the period 1980–2000 to test for the existence of a trade credit channel of transmission of monetary policy, and for whether this channel plays an offsetting effect on the traditional credit channel. We estimate error-correction inventory investment equations augmented with the coverage ratio and the trade credit to assets ratio, differentiating the effects of the latter variables across firms more or less likely to face financing constraints, and firms making a high or low use of trade credit. Our results suggest that both the credit and the trade credit channels operate in the UK, and that the latter channel tends to weaken the former. |
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