Does Trade Credit Provides Favorable Information to Banks? Evidence from Japan

Takanori Tanaka ()
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Takanori Tanaka: Institute of Social and Economic Research, Osaka University

No 09-22, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This article examines whether trade credit provides credible information about borrower fs creditworthiness, thereby facilitating provision of bank credit. Using data on Japanese manufacturing firms over the period 1990-1995, our empirical analyses reveal that trade payables as a credible signal about borrower fs creditworthiness facilitate the provision of short-term credit by less-informed banks. Consequently, in the firms that have arm fs-length relations with banks, trade payables play an important role in mitigating asymmetric information problems between firms and banks, thereby facilitating extension of bank credit.

Keywords: trade credit; bank credit (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2009-07
New Economics Papers: this item is included in nep-ban, nep-cta and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:0922

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