Does Trade Credit Substitute Bank Credit? Evidence From Firm-Level Data

August 1, 2003

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper examines micro data on Italian manufacturing firms' inventory behavior to test the Meltzer (1960) hypothesis according to which firms substitute trade credit for bank credit during periods of monetary tightening. It finds that their inventory investment is constrained by the availability of trade credit. As for the magnitude of the substitution effect, however, this study finds that it is not sizable. This is in line with the micro theories of trade credit and the evidence on actual firm practices, according to which credit terms display modest variations over time.

Subject: Bank credit, Credit, External debt, Financial statements, Monetary policy, Monetary tightening, Money, Public financial management (PFM), Trade credits

Keywords: Bank credit, Credit, Financial statements, Manufacturing Firms, Monetary Policy, Monetary tightening, TC coefficient, TC constraint, TC variable, TC-bank credit substitution hypothesis, Trade Credit, Trade credits, underling TC determinant, WP

Pages:
28
Volume:
2003
DOI:
https://doi.org/10.5089/9781451858129.001
Issue:
166
Series:
Working Paper No. 2003/166
Stock No:
WPIEA1662003
ISBN:
9781451858129
ISSN:
1018-5941

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