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Is trade credit a substitute for relationship lending credit?

Jeremie Bertrand () and Pierluigi Murro ()
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Jeremie Bertrand: ISA Lille

No wpC25, CERBE Working Papers from CERBE Center for Relationship Banking and Economics

Abstract: Despite its importance to the funding of small enterprises (SMEs), the question of how trade credit is used has not been fully answered. Recently, Uchida et al. (2013) showed that trade creditors can act as relationship lenders. To advance this result, we study the use of trade credit as a substitute for relationship lending credit when firms cannot otherwise obtain such credit. Using a sample of SMEs from the Survey of Italian Manufacturing Firms, we show that when opaque firms seeking relationship credit encounter transactional banks, they retain a greater portion of trade credit in their loans. These firms thus substitute trade credit for their missing relationship credit, because trade creditors are better evaluators of firms than are transactional lenders. The results depend on the size and age of the firm, the nature of the bank, and the size of the firm’s banking pool.

Keywords: Banks; Lending Technologies; Small Business; Trade Credit (search for similar items in EconPapers)
JEL-codes: G21 L14 L22 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2018-03
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ent and nep-sbm
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