The Trade Credit Channel of Monetary Policy Transmission: Evidence from Nonfinancial Manufacturing Firms in Turkey

This study investigates the trade credit channel of monetary policy transmission in Turkey by using a large panel of corporate firms and includes detailed information on balance sheets and income statements of firms that regularly reported to the Central Bank of the Republic of Turkey during the period 1996-2008. The study suggests that the composition of external finance differs considerably across firm types based on size and export performance under tight and loose financial conditions. Small and medium-size manufacturing firms and firms with a low export share are less likely to have access to bank finance, especially in tight periods. In addition, financially constrained firms with limited access to bank finance (small, low-export-share firms) tend to substitute trade credits for bank loans more aggressively in tight periods as monetary policy tightens. The large volume of trade credit on firms' balance sheets and its positive response to contractionary monetary shocks imply that the trade credit channel might subdue the traditional credit channel of monetary transmission.     

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.     

Trust and the provision of trade credit

State-controlled listed firms in China receive preferential treatment when borrowing from commercial banks; in contrast, private controlled firms rely on informal finance and on trade credit. We argue for and find evidence that private firms located in higher social trust regions use more trade credit from suppliers, extend more trade credit to customers, and collect receivables and pay payables more quickly. These findings are enhanced for firms located in provinces with weak protection of property rights. Our results are robust to different measures of social trust, legal environment, and endogeneity. Overall, our results show that social trust helps private firms overcome institutional difficulties in financing their activities.     

Suppliers' listing status and trade credit provision

We show that public suppliers extend more trade credit than their private counterparts. The impact of stock market listing on accounts receivable is more pronounced among firms that are financially more constrained or more reliant on external finance. Moreover, firms significantly increase their trade credit provision following equity issuances in stock exchanges. These results are consistent with the argument that stock market listing status improves firms' access to external sources of financing, especially equity capital, thus enhancing their ability to offer more trade credit to customers.     

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.     

Financing patterns around the world: Are small firms different?

Using a firm-level survey database covering 48 countries, we investigate how financial and institutional development affects financing of large and small firms. Our database is not limited to large firms but includes small and medium-size firms and data on a broad spectrum of financing sources, including leasing, supplier, development, and informal finance. Small firms and firms in countries with poor institutions use less external finance, especially bank finance. Protection of property rights increases external financing of small firms significantly more than of large firms, mainly due to its effect on bank finance. Small firms do not use disproportionately more leasing or trade finance compared with larger firms, so these financing sources do not compensate for lower access to bank financing of small firms. We also find that larger firms more easily expand external financing when they are constrained than small firms. Finally, we find suggestive evidence that the pecking order holds across countries.     

Trade Credit and Industry Dynamics: Evidence from Trucking Firms

Long payment terms are a strong impediment to the entry and survival of liquidity‐constrained firms. To test this idea and its implications, I consider the effect of a reform restricting the trade credit supply of French trucking firms. In a difference‐in‐differences setting, I find that trucking firms' corporate default probability decreases by 25% following the restriction. The effect is persistent, concentrated among liquidity‐constrained firms, and not offset by a decrease in profits. The restriction also triggers an increase in the entry of small trucking firms.     

产业集聚与商业信用——基于中国市级地区SIC-3工业部门的实证分析

作为对银行信用的一种替代,商业信用是满足企业短期资金需求的重要渠道。从理论上说,产业集聚有助于企业获取外源融资,提高商业信用的水平。利用中国市级地区184个SIC-3分类工业部门截面数据进行实证分析的结果显示,企业应付账款比例与产业集聚程度显著正相关。进一步分行业检验也表明,产业集聚对不同类型行业商业信用水平的影响存在较大差异。因此,各地方政府应培育本地区专业化生产分工网络,引导同类产业的专业化集聚,扩大基于生产网络关系的商业信用供给。这对缓解中国目前中小企业融资难问题具有一定的现实意义。     

Financing firms with restricted access to financial markets: the use of trade credit and factoring in Belgium

Many authors emphasize the implications of restricted access to financial markets for both small and new firms. The paper reports investigations into the use of alternative means of financing. More specifically, the use of trade credit and factoring are examined. Indeed, following the trade credit management literature both institutional and macro economic restrictions on small business finance can be overcome by ‘larger suppliers’ extending trade credit to their smaller customers. However, the DSO-rate cannot be used to measure the supplier's willingness to invest in trade credit as it depends on both suppliers' and customers' characteristics. The decision to extend trade credit is therefore approximated by the will to control its management and operationalized by the decision to factor or not to factor. The results of our study are twofold. First, factoring is mainly used by small and medium-sized companies. Moreover, when looking at the characteristics of the factor's customers, new companies facing huge capital expenditure programmes and seasonal sales decide to factor. The prejudice about factoring being a last resort means of finance is, however, not supported: companies that decide to use factoring are indeed less profitable, but this is simply due to their high growth and/or capital intensive investment programmes.     

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.     

Trade credit: theories and evidence

Firms may be financed by their suppliers rather than by financialinstitutions. There are many theories of trade credit, but fewcomprehensive empirical tests. This article attempts to fillthe gap. We focus on small firms whose access to capital marketsmay be limited and find evidence suggesting that firms use moretrade credit when credit from financial institutions is unavailable.Suppliers lend to constrained firms because they have a comparativeadvantage in getting information about buyers, they can liquidateassets more efficiently, and they have an implicit equity stakein the firms. Finally, firms with better access to credit offermore trade credit.     

Recognition versus disclosure of finance leases: Evidence from Japan

This study examines whether credit market participants—bond investors and credit rating agencies—treat recognized and disclosed finance leases differently when assessing firms’ credit risk in Japan. I use firms’ credit risk, measured by bond spreads and credit ratings, to investigate the relations between recognized versus disclosed finance lease obligations and firms’ credit risk following the adoption of Statement No. 13, Accounting Standard for Lease Transactions. For a sample of firms issuing new bonds, I find that, unlike recognized finance leases, disclosed finance leases are not associated with bond spreads. Moreover, the associations between recognized versus disclosed finance leases and bond spreads are substantially different. Conversely, recognized and disclosed finance leases are associated with credit ratings and are processed similarly when credit ratings are determined. Taken together, my results suggest that the sophistication of capital market participants influences their credit risk assessments of recognized versus disclosed finance leases.     

Cash holding,trade credit and access to short-term bank finance

Since 1988, cash holding of the UK companies has increased from 10.6% to 16.4% of total assets. To explain this increase, we develop a panel vector autoregression and analyse the dynamics between cash holding and its closest substitutes, trade credit and short-term bank finance. Impulse response functions confirm the signalling theory, as trade credit facilitates access to bank finance. Firms experiencing liquidity shocks resort to cash or trade credit but not to bank finance. Cash holding improves access to trade credit. Additional cash and trade credit trigger a slowdown of the cash conversion cycle explained by agency theory. Cash-rich firms have accumulated more cash than predicted because of an unexpected decline in short-term debt, stressing the role of banks in explaining the increase in cash holding.     

Trade Credit Terms Offered by Small Firms: Survey Evidence and Empirical Analysis

Trade credit has been shown to be an important source of short-term finance for smaller firms but small firms are also suppliers of trade credit. There is little empirical evidence on the credit granting decisions of small firms. Previous empirical work (Petersen and Rajan, 1997; and Ng, Smith and Smith, 1999) has focused on credit granting and investment in accounts receivable in larger firms. In this paper we look at the influences on credit granting for the smallest firms, using a sample of firms with an average of 10 employees. As in previous studies we find that product and demand characteristics influence credit terms. Moreover, we find evidence that firm size affects credit extension choices directly by setting limits on the possibilities for economies of scale, but it also impacts indirectly by affecting the firm's access to finance and its bargaining strength vis-à-vis suppliers. The dominant position of larger customers in bargaining with small suppliers constrains the impact of other factors on the firm's choice of credit terms. Small firms are also under pressure to conform to industry norms, although lack of resources can be a limiting factor. Constrained firms may make use of two-part terms in an attempt to improve their cashflow.     

Is there an employee-based gender gap in informal financial markets? International evidence

We study the impact of female production workers on firms' access to trade credits across the world. Using two sources of plausibly exogenous variations in gender bias and a difference-in-differences framework, we document that firms with more female production workers have less access to trade credits in countries with stronger gender beliefs that favor males. This relationship is largely driven by firms in industries with unexpected credit shortages and industries dominated by males. Since female firms rely more on informal finance, this study is relevant for policies that direct female firms towards formal credit markets in highly gender-biased places.     

Trade credit and stock liquidity

This study documents that firms with higher stock liquidity are more willing to extend trade credit and are less reliant on trade credit financing. This finding is robust to a battery of control variables, alternative measures of stock liquidity, different fixed effects, an instrumental variable approach, and a difference-in-difference approach using tick-size change as a quasi-natural experiment that exogenously increases stock liquidity. Subsample analyses show that the relation between trade credit policies and stock liquidity is more pronounced for firms that are financially constrained, dependent on external financing, and restricted by short-term debt. Overall, the evidence presented in this paper indicates that access to the equity market has important implications on firms' trade credit policies.     

Financial Constraints,Institutions, and Firm Productivity: Evidence from China

ABSTRACT

This paper investigates whether Chinese firms utilize trade credit as an alternative financial intermediation to alleviate financial constraints, and whether trade credit matters for firm productivity. The results show that trade credit significantly affects firm productivity in private and foreign-owned firms but not state-owned enterprises, indicating that trade credit is an efficient financial intermediation for non-state firms. Second, trade credit better helps firms that have severe financial constraints grow. Third, the mechanism of trade credit and TFP is by the substitution effect of cash flow, the smoothing effect of working capital and the drive of innovation. Finally, the impact of trade credit on productivity is driven by the regions under a more institutionally developed environment.     

Conditional conservatism and trade credit during the global financial crisis

We investigate conditional conservatism and firms’ access to trade credit during the 2007–2008 global financial crisis. Previous studies argue that suppliers prefer conservative customers because of information asymmetry in production networks; we extend this line of research by focusing on trade credit during the 2007–2008 global financial crisis, a period that was characterized by a credit supply shock. We first document a positive association between conditional conservatism and firms’ access to trade credit both before and after the onset of the crisis, which indicates suppliers’ demand for conditional conservatism. Meanwhile, the association between conditional conservatism and trade credit experienced a significant decline following the onset of the crisis, and this only held when suppliers and customers had frequent transactions or were in close proximity, when transacted goods were standardized rather than differentiated, when customers were financially constrained and had high bargaining power, and when suppliers had sufficient liquidity. It implies that, when information asymmetry along the supply chain was low and customers had strong bargaining power, liquid suppliers increased their tolerance to less conservative customers, and they were even willing to grant trade credit to the less conservative customers that were financially constrained. Overall, this study adds to previous literature by demonstrating suppliers’ multifaceted demand for conditional conservatism.     

Trade Credit, Corporate Groups, and the Financing of Belgian Firms

We investigate the role of trade credit as a source of financing. Using a sample of 661 large non-financial Belgian firms for the 1989–1991 period, we find that the amount of trade credit a buyer takes is determined by his need for funds and the internally available funds. Trade credit is primarily used to finance short-term assets. As such, it seems to be an important alternative not only for short-term bank debt but also for long-term financial debt, including intragroup debt. We find no evidence that the amount of trade credit taken is influenced by affiliation with the supplier.     

The signaling role of trade credit: Evidence from a counterfactual analysis

We quantify the signaling effect of trade credit on bank credit in a sample of US firms. Our identification strategy relies on the signaling model by Biais and Gollier (1997) and accounts for the endogeneity due to the possibility of self-selection and the simultaneity between banks’ and firms’ credit decisions. We find that: (i) firms’ self-select into trade credit; (ii) firms’ decision to use trade credit results in a higher chance of obtaining bank credit and a lower cost than the counterfactual ones they would have faced if not using trade credit.