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-Rev, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This paper examines whether trade credit as a credible signal about firm fs creditworthiness to banks facilitates provision of bank credit to the firms receiving trade credit. Using data on Japanese manufacturing firms over the period 1990-1995, we find that firms receiving trade credit are provided short-term credit by less-informed banks. Consequently, in the firms that have arm fs-length relations with banks, trade credit plays 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: 12 pages
Date: 2009-07, Revised 2010-02
New Economics Papers: this item is included in nep-ban and nep-cta
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