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Credit channel, trade credit channel, and inventory investment: evidence from a panel of UK firms

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  • Simona Mateut
  • Alessandra Guariglia

Abstract

In this paper, we use a panel of 609 UK firms over the period 1980-2000 to test for the existence of a trade credit channel of transmission of monetary policy, and for whether this channel plays an offsetting effect on the traditional credit channel. We estimate error-correction inventory investment equations augmented with the coverage ratio and the trade credit to assets ratio, differentiating the effects of the latter variables across firms more or less likely to face financing constraints, and firms making a high or low use of trade credit. Our results suggest that both the credit and the trade credit channels operate in the UK, and that the latter channel tends to weaken the former.

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Bibliographic Info

Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 05/02.

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Handle: RePEc:not:notcfc:05/02

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Keywords: Inventory investment; Trade credit; Coverage ratio; Financing constraints.;

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Citations

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Cited by:
  1. Bougheas, Spiros & Mateut, Simona & Mizen, Paul, 2009. "Corporate trade credit and inventories: New evidence of a trade-off from accounts payable and receivable," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(2), pages 300-307, February.
  2. Rajendra R. Vaidya, 2011. "The Determinants of trade credit: Evidence from Indian manufacturing firms," Indira Gandhi Institute of Development Research, Mumbai Working Papers, Indira Gandhi Institute of Development Research, Mumbai, India 2011-012, Indira Gandhi Institute of Development Research, Mumbai, India.
  3. Huang, Hui & Shi, Xiaojun & Zhang, Shunming, 2011. "Counter-cyclical substitution between trade credit and bank credit," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(8), pages 1859-1878, August.
  4. Marina-Eliza Spaliara, . "Do Financial Factors Affect The Capital-Labour Ratio: Evidence From UK Firm-Level Data," Discussion Papers, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) 09/04, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  5. Yang, Xiaolou, 2011. "Trade credit versus bank credit: Evidence from corporate inventory financing," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 51(4), pages 419-434.
  6. Pinar Ozlu & Cihan Yalcin, 2010. "The Trade Credit Channel of Monetary Policy Transmission: Evidence from Non-Financial Firms in Turkey (Firma Ticari Borclari ve Kredi Aktarim Mekanizmasi: Turkiye Ornegi)," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 1016, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  7. Shabbir, Safia, 2012. "Balance Sheet Channel of Monetary Policy and Economic Growth under Fiscal Dominance: Evidence from Pakistan," MPRA Paper 41496, University Library of Munich, Germany.
  8. Ferrando, Annalisa & Mulier, Klaas, 2012. "Do firms use the trade credit channel to manage growth?," Working Paper Series, European Central Bank 1502, European Central Bank.
  9. Zhang, Qinhong & Dong, Ming & Luo, Jianwen & Segerstedt, Anders, 2014. "Supply chain coordination with trade credit and quantity discount incorporating default risk," International Journal of Production Economics, Elsevier, Elsevier, vol. 153(C), pages 352-360.
  10. Shabbir, Safia, 2012. "Monetary Transmission in Pakistan: The Balance Sheet Channel," MPRA Paper 37862, University Library of Munich, Germany.
  11. Ferrando, Annalisa & Mulier, Klaas, 2013. "Firms’ financing constraints: do perceptions match the actual situation?," Working Paper Series, European Central Bank 1577, European Central Bank.
  12. Ydriss Ziane, 2009. "Tests des motifs transactionnels et financiers du crédit commercial:le cas des firmes lorraines," Revue Finance Contrôle Stratégie, revues.org, revues.org, vol. 12(1), pages 67-92, March.
  13. Gianni La Cava, 2013. "Inventory Investment in Australia and the Global Financial Crisis," RBA Research Discussion Papers, Reserve Bank of Australia rdp2013-13, Reserve Bank of Australia.
  14. Ketskeméty, László & Pálinkó, Éva & Szabó, Márta, 2010. "Kereskedelmi hitelt alakító paraméterek a magyarországi feldolgozóipari vállalatok körében
    [Parameters for commercial credit among Hungary's manufacturing companies]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 994-1012.
  15. Santiago Carbó Valverde & Rafael López del Paso, 2009. "Bank-lending channel and non-financial firms: evidence for Spain," Spanish Economic Review, Springer, Springer, vol. 11(2), pages 125-140, June.
  16. Beltratti, Andrea & Morana, Claudio, 2010. "International house prices and macroeconomic fluctuations," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(3), pages 533-545, March.
  17. Mariarosaria Agostino & Francesco Trivieri, 2014. "Does trade credit play a signalling role? Some evidence from SMEs microdata," Small Business Economics, Springer, Springer, vol. 42(1), pages 131-151, January.
  18. Ono, Masanori, 2009. "Trading companies as financial intermediaries in Japan," MPRA Paper 17331, University Library of Munich, Germany.
  19. Caglayan, Mustafa & Maioli, Sara & Mateut, Simona, 2012. "Inventories, sales uncertainty, and financial strength," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(9), pages 2512-2521.

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