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Does Trade Credit Provides Favorable Information to Banks? Evidence from Japan

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  • Takanori Tanaka

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    (Institute of Social and Economic Research, Osaka University)

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    Abstract

    This paper examines whether trade credit as a credible signal about firmfs creditworthiness to banks facilitates provision of bank credit to the firms receiving trade credit. Using data on Japanese manufacturing firms over the period 1990-1995, we find that firms receiving trade credit are provided short-term credit by less-informed banks. Consequently, in the firms that have armfs-length relations with banks, trade credit plays an important role in mitigating asymmetric information problems between firms and banks, thereby facilitating extension of bank credit.

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0922R.pdf
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    Bibliographic Info

    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 09-22-Rev.

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    Length: 12 pages
    Date of creation: Jul 2009
    Date of revision: Feb 2010
    Handle: RePEc:osk:wpaper:0922r

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    Web page: http://www.econ.osaka-u.ac.jp/
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    Keywords: Trade Credit; Bank Credit;

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    1. Jeffrey H. Nilsen, 1999. "Trade Credit and the Bank Lending Channel," Working Papers 99.04, Swiss National Bank, Study Center Gerzensee.
    2. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-91.
    3. Biais, Bruno & Gollier, Christian, 1997. "Trade Credit and Credit Rationing," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 903-37.
    4. Mariassunta Giannetti & Mike Burkart & Tore Ellingsen, 0. "What You Sell Is What You Lend? Explaining Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 1261-1298.
    5. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
    6. Simona MATEUT & Spiros BOUGHEAS & Paul MIZEN, 2003. "Trade Credit, Bank Lending and Monetary Policy Transmission," Economics Working Papers ECO2003/02, European University Institute.
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