The Role of Trade Credit for Small Firms: An Implication from Japan's Banking Crisis

Shin-ichi Fukuda (), Munehisa Kasuya and Kentaro Akashi
Additional contact information
Munehisa Kasuya: Director, Bank of Japan
Kentaro Akashi: Graduate Student,University of Tokyo

Public Policy Review, 2007, vol. 3, issue 1, 27-50

Abstract: The purpose of this paper is to investigate the role of trade credit during the banking crisis in Japan. Trade credit is one of the most important sources of short-term external finance for small firms. Previous literature has focused mainly on the substitution of bank loans for trade credit during monetary tightening among many firms, but in this paper we investigate the role of trade credit during the banking crisis. The basic motivation is to explore whether the substitution hypothesis still holds even under serious financial turbulence. Our main results suggest that the substitution hypothesis held in Japan when the banking sector was healthy, but broke down during the banking crisis. More precisely, both bank loans and trade credit contracted simultaneously during the crisis. Deteriorated bank health might have been primarily responsible for the widespread declines of credit to small and medium size firms in Japan during the banking crisis.

Keywords: Trade credit; Bank-firm relationship; Unlisted firms (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: The Role of Trade Credit for Small Firms: An Implication from Japan's Banking Crisis (2006)
Working Paper: The Role of Trade Credit for Small Firms: An Implication from Japan's Banking Crisis (2006)
Working Paper: The Role of Trade Credit for Small Firms: An Implication from Japan's Banking Crisis (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:mof:journl:ppr003b

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