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Does trade credit facilitate access to bank finance? An empirical evidence from Portuguese and Spanish small medium size enterprises

Does trade credit facilitate access to bank finance? An empirical evidence from Portuguese and Spanish small medium size enterprises

Gama, Ana Paula Matias and Mateus, Cesario (2010) Does trade credit facilitate access to bank finance? An empirical evidence from Portuguese and Spanish small medium size enterprises. International Research Journal of Finance and Economics, 45. pp. 26-45. ISSN 1450-2887

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Abstract

To assess the existence of credit rationing, we examine if trade credit is a substitute and/or a complement to bank credit. Using a data set of Portuguese and Spanish small and medium sized enterprises, and controlling for endogeneity problems by using GMM estimators, our results confirm the existence of credit rationing. This effect is particularly strong for firms that maintain an exclusive relationship with one bank, which indicate a greater severity of adverse selection problems for those firms. However, our results indicate that the substitution and complementary hypothesis are not mutually exclusive, especially for the younger and smaller firms. In line with the theories that emphasize the informational role of trade credit, due the informative advantage of suppliers, our empirical results confirm that trade credit allow the younger and smaller firms to improve their reputation, as trade credit reveals the private information of the supplier to the bank, in turn, banks can update their beliefs about customer default risk and agree to increase bank credit.

Item Type: Article
Additional Information: [1] First published: August 2010. [2] Published as: International Research Journal of Finance and Economics, (2010), Issue 45, pp. 26-45.
Uncontrolled Keywords: small firms finance, credit rationing, trade credit, asymmetric information, bank credit
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
Faculty / Department / Research Group: Faculty of Business > Centre for Governance, Risk & Accountability (GRA)
Faculty of Business > Department of Accounting & Finance
Related URLs:
Last Modified: 12 Dec 2016 12:28
URI: http://gala.gre.ac.uk/id/eprint/7667

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