How Do Small Businesses Finance their Growth Opportunities? – The Case of Recovery from the Lost Decade in Japan?
AbstractWe investigate the financial resources used by small businesses in Japan during the period of recovery from a severe recession. Unlike large listed firms, small businesses cannot easily issue commercial debt or equity. Therefore, small businesses largely depend on trade credit and bank loans. Many previous studies argue that bank loans are cheaper than trade credit; so many firms (particularly unconstrained firms) use bank loans, especially in financially developed economies. However, the Japanese evidence does not support this view. First, small businesses with higher credit demand increase trade credit more during the period of the recovery from a severe recession. Second, creditworthy firms (for example, firms with more collateral assets) also increase trade credit to finance their growth opportunities. Third, firms in unstable industries increase trade credit more. This suggests that suppliers are able to offer credit, unlike banks, as they have a relative advantage in day-by-day monitoring.
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Bibliographic InfoPaper provided by National Graduate Institute for Policy Studies in its series GRIPS Discussion Papers with number 09-19.
Length: 50 pages
Date of creation: Jan 2010
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-23 (All new papers)
- NEP-BAN-2010-01-23 (Banking)
- NEP-FDG-2010-01-23 (Financial Development & Growth)
- NEP-MIC-2010-01-23 (Microeconomics)
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