Trade credit behavior of Korean small and medium sized enterprises during the 1997 financial crisis |
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| Affiliation: | 1. Faculty of Business, Economics, and Accountancy, Universiti Malaysia Sabah, Kota Kinabalu, Malaysia;2. Faculty of Economic Sciences/School of Finance, National Research University Higher School of Economics, Russian Federation;3. Deakin Business School, Deakin University, Australia;1. School of Business Administration, Dongbei University of Finance and Economics, Dalian, China;2. W. P. Carey School of Business, Arizona State University, USA;1. Moore School of Business, University of South Carolina, 1705 College St., Columbia, SC 29208, USA;2. Hanqing Advanced Institute of Economics and Finance, Renmin University of China, Beijing, China;3. School of Economics and Finance, The University of Hong Kong, Pokfulam Road, Hong Kong, China |
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| Abstract: | This paper investigates the effect of the 1997 Korean financial crisis on the trade credit behavior of Korean small and medium sized enterprises (SMEs) using a unique panel dataset for the period 1994 to 1999. I uncover new evidence supporting the substitution and redistribution hypotheses, which contradicts earlier studies. Specifically, the results show that liquid SMEs provided more trade credit to their client firms during the credit contraction, while financially constrained SMEs received more trade credit from their suppliers. Further, I find evidence that SMEs in financially distressed regions relied more on trade credit than their counterparts in financially healthier regions. |
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| Keywords: | Trade credit Bank credit Liquidity External financing SMEs Financial crisis Financial constraints Korea |
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