Trade Credit Terms Offered by Small Firms: Survey Evidence and Empirical Analysis
AbstractTrade credit has been shown to be an important source of short-term finance for smaller firms but small firms are also suppliers of trade credit. There is little empirical evidence on the credit granting decisions of small firms. Previous empirical work (Petersen and Rajan, 1997; and Ng, Smith and Smith, 1999) has focused on credit granting and investment in accounts receivable in larger firms. In this paper we look at the influences on credit granting for the smallest firms, using a sample of firms with an average of 10 employees. As in previous studies we find that product and demand characteristics influence credit terms. Moreover, we find evidence that firm size affects credit extension choices directly by setting limits on the possibilities for economies of scale, but it also impacts indirectly by affecting the firm's access to finance and its bargaining strength "vis-à-vis" suppliers. The dominant position of larger customers in bargaining with small suppliers constrains the impact of other factors on the firm's choice of credit terms. Small firms are also under pressure to conform to industry norms, although lack of resources can be a limiting factor. Constrained firms may make use of two-part terms in an attempt to improve their cashflow. Copyright Blackwell Publishers Ltd 2002.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.
Volume (Year): 29 (2002-04)
Issue (Month): 3&4 ()
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Daniela Fabbri & Anna Maria Cristina Menichini, 2005.
"Trade Credit, Collateral Liquidation and Borrowing Constraints,"
CSEF Working Papers
146, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 08 Feb 2009.
- Fabbri, Daniela & Menichini, Anna Maria C., 2010. "Trade credit, collateral liquidation, and borrowing constraints," Journal of Financial Economics, Elsevier, vol. 96(3), pages 413-432, June.
- Nancy Huyghebaert & Linda Gucht & Cynthia Hulle, 2007. "The Choice between Bank Debt and Trace Credit in Business Start-ups," Small Business Economics, Springer, vol. 29(4), pages 435-452, December.
- TSURUTA Daisuke, 2009. "Customer Relationships and the Provision of Trade Credit during a Recession," Discussion papers 09043, Research Institute of Economy, Trade and Industry (RIETI).
- Van Horen, Neeltje, 2007.
"Customer Market Power and the Provision of Trade Credit; Evidence from Eastern Europe and Central Asia,"
3378, University Library of Munich, Germany.
- Van Horen, Neeltje, 2007. "Customer market power and the provision of trade credit : evidence from Eastern Europe and Central Asia," Policy Research Working Paper Series 4284, The World Bank.
- Massimo Omiccioli, 2005. "Trade Credit as Collateral," Temi di discussione (Economic working papers) 553, Bank of Italy, Economic Research and International Relations Area.
- Giuseppe Marotta, 2003.
"When do trade credit discounts matter? Evidence from Italian firm-level data,"
Heterogeneity and monetary policy
0303, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
- Giuseppe Marotta, 2005. "When do trade credit discounts matter? Evidence from Italian firm-level data," Applied Economics, Taylor & Francis Journals, vol. 37(4), pages 403-416.
- Fabbri, Daniela & Klapper, Leora, 2008. "Market power and the matching of trade credit terms," Policy Research Working Paper Series 4754, The World Bank.
- Jézabel Couppey-Soubeyran & Jérôme Héricourt, 2011.
"The relationship between trade credit, bank credit and financial structure: from firm-level non-linearities to financial development heterogeneity. A study on MENA firm-level data,"
Documents de travail du Centre d'Economie de la Sorbonne
11008, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Jézabel Couppey-Soubeyran & Jérôme Héricourt, 2011. "The relationship between trade credit, bank credit and financial structure : from firm-level non-linearities to financial development heterogeneity. A study on MENA firm-level data," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00609625, HAL.
- Ydriss Ziane, 2009. "Tests des motifs transactionnels et financiers du crédit commercial:le cas des firmes lorraines," Revue Finance Contrôle Stratégie, revues.org, vol. 12(1), pages 67-92, March.
- Pedro García-Teruel & Pedro Martínez-Solano, 2010. "A dynamic perspective on the determinants of accounts payable," Review of Quantitative Finance and Accounting, Springer, vol. 34(4), pages 439-457, May.
- Daniela Fabbri & Annamaria Menichini, 2012. "The Commitment Problem of Secured Lending," CSEF Working Papers 318, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.