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Trade Credit, Financial Intermediary Development, and Industry Growth

Author

Listed:
  • Raymond Fisman

    (Graduate School of Business, Columbia University,)

  • Inessa Love

    (World Bank)

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 preexisting firms. Copyright 2003 by the American Finance Association.

Suggested Citation

  • 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, February.
  • Handle: RePEc:bla:jfinan:v:58:y:2003:i:1:p:353-374
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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