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Trade Credit and Bank Lending: An Investigation into the Determinants of UK Manufacturing Firms' Access to Trade Credit

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  • Simona MATEUT
  • Paul MIZEN

Abstract

Trade credit is an important source of finance for firms, but it has typically been excluded from the analysis of the credit channel. In this paper we examine a panel of 16,000 manufacturing firm records for the years 1990 through 1999. We show that the uptake of trade credit varies with the monetary cycle, increasing when interest rates are high and falling when rates fall; this offers indirect evidence in support of the bank lending channel. We discover that suppliers evaluate the creditworthiness of firms on much the same basis as banks, with solvency, credit risk and age all improving the access to trade credit. We conclude that trade credit is taken up by firms as a substitute for bank finance at the margin when they are credit constrained.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2003/03.

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Date of creation: 2003
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Handle: RePEc:eui:euiwps:eco2003/03

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Cited by:
  1. Domenico Delli Gatti & Mauro Gallegati & Bruce Greenwald & Alberto Russo & Joseph Stiglitz, 2009. "Business fluctuations and bankruptcy avalanches in an evolving network economy," Journal of Economic Interaction and Coordination, Springer, vol. 4(2), pages 195-212, November.

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