The trade credit channel revisited: evidence from micro data of Japanese small firms

Kazuo Ogawa*, Elmer Sterken, Ichiro Tokutsu

*Corresponding author for this work

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    22 Citations (Scopus)
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    Abstract

    It is suggested that trade credit can be a substitute for bank loans for small- and medium-sized enterprises (SMEs) that have little access to external funding sources. Using unique cross-sectional survey data of Japanese SMEs, we conduct a deep investigation into the substitutability between bank loans and trade credit. This survey contains rich information on the suppliers of trade credit to SMEs, thus enabling the examination of the channel through which credit is provided from suppliers to customers. We find that SMEs with little access to bank credit depend more on large suppliers for trade credit. We also find that when a purchase is made from a large supplier, more credit is indeed provided in the form of trade credit. Furthermore, this channel of credit from large suppliers to SMEs is only observed for solvent customers, not for insolvent customers. Our findings suggest that trade credit plays an important role for entrepreneurial firms over the financial growth cycle. For young and small firms with little access to bank loans trade credit is an important funding source.

    Original languageEnglish
    Pages (from-to)101-118
    Number of pages18
    JournalSmall Business Economics
    Volume40
    Issue number1
    DOIs
    Publication statusPublished - Jan-2013

    Keywords

    • Trade credit
    • Bank loans
    • Redistribution of credit
    • Insolvency
    • BUSINESS START-UPS
    • LENDING RELATIONSHIPS
    • FINANCIAL STRUCTURE
    • DEBT
    • DETERMINANTS
    • BENEFITS
    • GROWTH

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