The Role of Trade Credit for Small Firms : An Implication from JapanÃ¢â‚¬â„¢s Banking Crisis
AbstractThe purpose of this paper is to investigate the role of trade credit during the banking crisis in Japan. Trade credit is one of the most important sources of short-term external finance for small firms. Previous literature has focused mainly on the substitution of bank loans for trade credit during monetary tightening among many firms, but in this paper we investigate the role of trade credit during the banking crisis. The basic motivation is to explore whether the substitution hypothesis still holds even under serious financial turbulence. Our main results suggest that the substitution hypothesis held in Japan when the banking sector was healthy, but broke down during the banking crisis. More precisely, both bank loans and trade credit contracted simultaneously during the crisis. Deteriorated bank health might have been primarily responsible for the widespread declines of credit to small and medium size firms in Japan during the banking crisis.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22596.
Date of creation: Jan 2007
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Trade credit; Bank-firm relationship; Unlisted firms;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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- Kang, Jun-Koo & Stulz, Rene M, 2000. "Do Banking Shocks Affect Borrowing Firm Performance? An Analysis of the Japanese Experience," The Journal of Business, University of Chicago Press, vol. 73(1), pages 1-23, January.
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"Impaired Bank Health and Default Risk,"
CIRJE-F-564, CIRJE, Faculty of Economics, University of Tokyo.
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- Shin-ichi Fukuda & Munehisa Kasuya & Jouchi Nakajima, 2005. "Deteriorating Bank Health and Lending in Japan: Evidence from Unlisted Companies Undergoing Financial Distress," CIRJE F-Series CIRJE-F-364, CIRJE, Faculty of Economics, University of Tokyo.
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