Firms as financial intermediaries - evidence from trade credit data

Asli Demirguc-Kunt and Vojislav Maksimovic

No 2696, Policy Research Working Paper Series from The World Bank

Abstract: The authors argue that non-financial firms act as intermediaries, by channeling short-term funds from the financial institutions in an economy, to their best use. Non-financial firms act in this way because they may have a comparative advantage in exploiting informal means of ensuring that borrowers repay. These considerations suggest that to optimally exploit their advantage in providing trade credit to some classes of borrowers, firms should obtain external financing from financial intermediaries, and markets, when this is efficient. Thus the existence of a large banking system is consistent with these considerations. Using firm-level data for thirty nine countries, the authors compute turnovers in payables, and receivables, and examine how they differ across financial systems. They find that the development level of a country's legal infrastructure, and banking system predicts the use of trade credit. Firms'use of bank debt is higher relative to their use of trade credit in countries with efficient legal systems. Bur firms in countries with large, privately owned banking systems, offer more financing to their customers, and take more financing from them. The authors'findings suggest that trade credit is a complement to lending by financial intermediaries, and should not be viewed by policymakers as a substitute.

Keywords: Economic Theory&Research; Payment Systems&Infrastructure; International Terrorism&Counterterrorism; Environmental Economics&Policies; Banks&Banking Reform; Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform; Financial Intermediation; Financial Crisis Management&Restructuring (search for similar items in EconPapers)
Date: 2001-10-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (150)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi0page.pdf (application/pdf)

Related works:
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:wbk:wbrwps:2696

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().