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Costs of short-term credit for small and large firms

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  • Walker, David A.
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    Abstract

    Changes in costs of credit for small and large firms respond differently to economic conditions and the markets are segmented. Costs for small firms are less responsive to changing economic conditions. Small firms borrow via credit card loans and from banks. Dynamic models prove the costs of funds are negative functions of quantities borrowed and positive functions of the Fed funds rate. During recessions, the decline in funds' prices to large firms is greater than the reductions to small firms. Large firms benefit to a greater extent than small firms when prices of credit are changing.

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    File URL: http://www.sciencedirect.com/science/article/B6W5X-509W7DX-2/2/0fdbfa3db4cc6923642c30a3d0f7c01d
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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 50 (2010)
    Issue (Month): 4 (November)
    Pages: 485-491

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    Handle: RePEc:eee:quaeco:v:50:y:2010:i:4:p:485-491

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Small business credit Segmented markets;

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    1. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    2. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
    3. Bengt Holmstrom & Jean Tirole, 1996. "Private and Public Supply of Liquidity," NBER Working Papers 5817, National Bureau of Economic Research, Inc.
    4. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
    5. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
    6. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
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