Advanced Search
MyIDEAS: Login

The Implications of Trade Credit for Bank Monitoring: Suggestive Evidence from Japan

Contents:

Author Info

  • Yoshiro Miwa
  • J. Mark Ramseyer

Abstract

"Firms in modern developed economies borrow from both banks and trade partners. Using Japanese manufacturing data from the 1960s, we estimate the price of trade credit, and explore some of the ways firms choose between the credit and bank loans. We find that firms of all sizes borrow heavily from their trade partners, and at implicit rates that track the explicit rates banks would charge. They borrow from banks when they anticipate needing money for relatively long periods; they turn to trade partners when they face short-term unexpected exigencies. This apparent contrast in the term structures follows, we suggest, from the fundamentally different way bankers and trade partners cut default risk. Because bankers seldom know their borrowers' industries first hand, they rely on formal legal protection (like security interests). Because trade partners know the industry well, they reduce risk by monitoring their borrowers closely instead. Because the costs to creating legal mechanisms are heavily front-loaded, bankers focus on long-term debt; because the costs of monitoring debtors are ongoing, trade creditors do not. Apparently, banks monitor less than we have thought." Copyright (c) 2008, The Author(s) Journal Compilation (c) 2008 Blackwell Publishing.

Download Info

If 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.
File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=jems&volume=17&issue=2&year=2008&part=null
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

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 Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 17 (2008)
Issue (Month): 2 (06)
Pages: 317-343

as in new window
Handle: RePEc:bla:jemstr:v:17:y:2008:i:2:p:317-343

Contact details of provider:
Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

Order Information:
Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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).
  2. Yoshiro Miwa, 2011. "Are Japanese Firms Becoming More Independent from Their Banks?: Evidence from the Firm-Level Data of the "Corporate Enterprise Quarterly Statistics," 1994-2009," CARF F-Series CARF-F-251, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  3. Hirofumi Uchida & Gregory F. Udell & Wako Watanabe, 2006. "Are Trade Creditors Relationship Lenders?," Discussion papers 06026, Research Institute of Economy, Trade and Industry (RIETI).
  4. 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.
  5. Yoshiro Miwa, 2013. "How Strongly Do "Financing Constraints" Affect Firm Behavior? Japanese Corporate Investment since the Mid-1980s," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(1), pages 203-255, January.
  6. Astrid K. Chludek, 2011. "A note on the price of trade credit," Managerial Finance, Emerald Group Publishing, vol. 37(6), pages 565-574, June.
  7. Daisuke Tsuruta, 2010. "How Do Small Businesses Finance their Growth Opportunities? – The Case of Recovery from the Lost Decade in Japan?," GRIPS Discussion Papers 09-19, National Graduate Institute for Policy Studies.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:17:y:2008:i:2:p:317-343. See general information about how to correct material in RePEc.

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.