Trade Credits and Bank Credits in International Trade: Substitutes or Complements?

Martina Engemann, Katharina Eck and Monika Schnitzer ()

No 108, Working Papers from Bavarian Graduate Program in Economics (BGPE)

Abstract: Trade credits are an important financing tool for internationally active firms. This is surprising, as trade credits are generally more expensive than bank credits and thus a costly substitute for bank financing. In this paper, we investigate the relation between trade credits and bank credits for exporting firms. We develop a theoretical model and show that trade credits convey a quality signal which reduces the risk of the transaction and may thus facilitate obtaining additional bank credits. Thus, for exporters who are not able to obtain bank credits in the first place, trade credits and bank credits are complements. Using panel data on German manufacturing firms, we provide supportive evidence for our theoretical predictions. For financially unconstrained firms, trade credits and bank credits are substitutes. For financially constrained exporters, instead, trade credits have a significantly positive effect on the availability of bank credits.

Keywords: Trade Credits; Bank Credits; International Trade; Financial Constraints (search for similar items in EconPapers)
JEL-codes: F10 G30 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://bgpe.cms.rrze.uni-erlangen.de/files/2023/0 ... s-or-Complements.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Trade Credits and Bank Credits in International Trade: Substitutes or Complements? (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bav:wpaper:108_engemanneckschnitzer

Access Statistics for this paper

More papers in Working Papers from Bavarian Graduate Program in Economics (BGPE) Contact information at EDIRC.
Bibliographic data for series maintained by Anton Barabasch ().