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Does Trade Credit Substitute Bank Credit? Evidence from Firm-level Data

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Author Info
Guido De Blasio
Abstract

The paper examines micro data on Italian manufacturing firms' inventory behavior to test the Meltzer (1960) hypothesis according to which firms substitute trade credit for bank credit during periods of monetary tightening. It finds that their inventory investment is constrained by the availability of trade credit. As for the magnitude of the substitution effect, however, this study finds that it is not sizable. This is in line with the micro theories of trade credit and the evidence on actual firm practices, according to which credit terms display modest variations over time.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/166.

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Length: 27 pages
Date of creation: 02 Sep 2003
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Handle: RePEc:imf:imfwpa:03/166

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Keywords: Trade Credit Monetary policy Manufacturing

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    Other versions:
  2. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2001. "Firms as financial intermediaries - evidence from trade credit data," Policy Research Working Paper Series 2696, The World Bank. [Downloadable!]
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    Other versions:
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  6. Massimo Omiccioli, 2004. "Il credito commerciale: problemi e teorie," Temi di discussione (Economic working papers) 494, Bank of Italy, Economic Research Department. [Downloadable!]
  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. [Downloadable!] (restricted)
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  9. Giuseppe Marotta, 1997. "Does trade credit redistribution thwart monetary policy? Evidence from Italy," Applied Economics, Taylor and Francis Journals, vol. 29(12), pages 1619-1629, December. [Downloadable!] (restricted)
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    Other versions:
  17. Stephen Bond & Julie Elston & Jacques Mairesse & Benoit Mulkay, 1997. "Financial Factors and Investment in Belgium, France, Germany and the UK:A Comparison Using Company Panel Data," NBER Working Papers 5900, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle," Macroeconomics 9401001, EconWPA. [Downloadable!]
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  23. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  24. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(3), pages 661-91.
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  25. Raymond Fisman & Inessa Love, 2002. "Trade Credit, Financial Intermediary Development and Industry Growth," NBER Working Papers 8960, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  26. Xavier Freixas, 1993. "Short Term Credit Versus Account Receivable Financing," Economics Working Papers 27, Department of Economics and Business, Universitat Pompeu Fabra.
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    Other versions:
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