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European trade credit use and SME survival

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  • McGuinness, Gerard
  • Hogan, Teresa
  • Powell, Ronan

Abstract

We examine if trade credit helped financially constrained SMEs survive the recent financial crisis. Using data for 202,696 SMEs across 13 European countries over the period 2003–2012, we show that trade credit had a large positive impact on firm survival, such that a one standard deviation increase in trade credit results in a 21% decrease in the likelihood of distress. We also report evidence of a significant redistribution effect, with cash rich or unconstrained SMEs extending significantly more net trade credit than their less financially resourced counterparts. The results are robust to several econometric concerns.

Suggested Citation

  • McGuinness, Gerard & Hogan, Teresa & Powell, Ronan, 2018. "European trade credit use and SME survival," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 81-103.
  • Handle: RePEc:eee:corfin:v:49:y:2018:i:c:p:81-103
    DOI: 10.1016/j.jcorpfin.2017.12.005
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    Cited by:

    1. repec:eee:finana:v:59:y:2018:i:c:p:147-162 is not listed on IDEAS
    2. Simona Mateut & Thanaset Chevapatrakul, 2016. "Customer financing, bargaining power and trade credit uptake," Discussion Papers 2016/04, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).

    More about this item

    Keywords

    Trade credit; Financial crisis; SMEs; Panel data; Survival; Financial distress; Country effects;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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