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Trade Credit, Financial Intermediary Development, and Industry Growth

  • Raymond Fisman

    (Graduate School of Business, Columbia University,)

  • Inessa Love

    (World Bank)

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.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 58 (2003)
Issue (Month): 1 (02)
Pages: 353-374

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Handle: RePEc:bla:jfinan:v:58:y:2003:i:1:p:353-374
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