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Trade Credit, Financial Intermediary Development and Industry Growth

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  • Raymond Fisman
  • Inessa Love

Abstract

Recent work suggests that financial development is important for economic growth, since financial markets more effectively allocate capital to firms with high value projects. For firms in poorly developed financial markets, implicit borrowing in the form of trade credit may provide an alternative source of funds. We show that industries with higher dependence on trade credit financing exhibit higher rates of growth in countries with weaker financial institutions. Furthermore, consistent with barriers to trade credit access among young firms, we show that most of the effect that we report comes from growth in the size of pre-existing firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8960.

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Date of creation: May 2002
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Publication status: published as Raymond Fisman & Inessa Love, 2003. "Trade Credit, Financial Intermediary Development, and Industry Growth," Journal of Finance, American Finance Association, vol. 58(1), pages 353-374, 02.
Handle: RePEc:nbr:nberwo:8960

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  1. Demirguc-Kunt, Asli & Levine, Ross, 1995. "Stock market development and financial intermediaries : stylized facts," Policy Research Working Paper Series 1462, The World Bank.
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  10. Mian, Shehzad L & Smith, Clifford W, Jr, 1992. " Accounts Receivable Management Policy: Theory and Evidence," Journal of Finance, American Finance Association, American Finance Association, vol. 47(1), pages 169-200, March.
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  16. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, American Finance Association, vol. 42(4), pages 863-72, September.
  17. Love, Inessa, 2001. "Financial development and financing constraints - international evidence from the structural investment model," Policy Research Working Paper Series 2694, The World Bank.
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