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How Trade Credit Differs from Loans: Evidence from Japanese Trading Companies

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  • Iichiro Uesugi
  • Guy M. Yamashiro

Abstract

In this paper we examine the determinants of the relationship between trade credit and bank loans. Previous studies of this relationship fall into two categories: (1) those emphasizing the difference between financial and non-financial institutions, and (2) those emphasizing the difference between credit instruments. By using data on trading companies that supply both loans and trade credit we are able to determine the relative importance of both institutional differences and instrumental differences for the trade credit-loan relationship. We find that trade credit and loans differ significantly even when offered by the same institutions, while loans extended by financial institutions and those extended by non-financial enterprises respond similarly.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 04028.

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Length: 47 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:eti:dpaper:04028

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References

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  1. James E. Rauch, 1996. "Trade and Search: Social Capital, Sogo Shosha, and Spillovers," NBER Working Papers 5618, National Bureau of Economic Research, Inc.
  2. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, vol. 43(5), pages 1127-41, December.
  3. Mariassunta Giannetti & Mike Burkart & Tore Ellingsen, 0. "What You Sell Is What You Lend? Explaining Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 1261-1298.
  4. Kamada, Koichiro & Masuda, Kazuto, 2001. "Effects of Measurement Error on the Output Gap in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(2), pages 109-154, May.
  5. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-72, September.
  6. Mitchell A. Petersen & Raghuram G. Rajan, 1996. "Trade Credit: Theories and Evidence," NBER Working Papers 5602, National Bureau of Economic Research, Inc.
  7. Ferris, J Stephen, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 243-70, May.
  8. Sheard, Paul, 1989. "The Japanese general trading company as an aspect of interfirm risk-sharing," Journal of the Japanese and International Economies, Elsevier, vol. 3(3), pages 308-322, September.
  9. Mike Burkart & Tore Ellingsen, 2004. "In-Kind Finance: A Theory of Trade Credit," American Economic Review, American Economic Association, vol. 94(3), pages 569-590, June.
  10. Ono, Masanori, 2001. "Determinants of Trade Credit in the Japanese Manufacturing Sector," Journal of the Japanese and International Economies, Elsevier, vol. 15(2), pages 160-177, June.
  11. Mitchell Berlin, 2003. "Trade credit: why do production firms act as financial intermediaries?," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 21-28.
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Cited by:
  1. 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.
  2. Santiago Carbó Valverde & Francisco Rodríguez-Fernández & Gregory F. Udell, 2008. "Bank lending, financing constraints and SME investment," Working Paper Series WP-08-04, Federal Reserve Bank of Chicago.
  3. Shin-ichi Fukuda & Munehisa Kasuya & Kentaro Akashi, 2006. "The Role of Trade Credit for Small Firms: An Implication from Japan's Banking Crisis," CARF F-Series CARF-F-078, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  4. Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2013. "Are trade creditors relationship lenders?," Japan and the World Economy, Elsevier, vol. 25, pages 24-38.
  5. 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.
  6. Shin-ichi Fukuda & Munehisa Kasuya & Kentaro Akashi, 2007. "The Role of Trade Credit for Small Firms : An Implication from Japan’s Banking Crisis," Finance Working Papers 22596, East Asian Bureau of Economic Research.

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