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Are trade creditors relationship lenders?

Author

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  • Uchida, Hirofumi
  • Udell, Gregory F.
  • Watanabe, Wako

Abstract

We test the hypothesis that trade creditors are relationship lenders using SME data from Japan. We find that the validity of the relationship lending hypothesis depends on the relative bargaining power between the buyer and sellers. Specifically, we find evidence that longer buyer–seller relationships may matter depending on the buyer–seller relative bargaining power. When a buyer depends too much on its main supplier, the supplier does not provide more credit as its relationship with the buyer matures. However, a longer buyer/main-supplier relationship is beneficial because a non-dependent buyer can obtain more overall credit from sellers. Depending on the extent to which this increase is due to an increase in the credit from the main suppliers, our findings are consistent with the relationship lending hypothesis. However, even if the increase mainly comes from other sellers, our findings imply that sellers extract a positive signal from a longer buyer/main-supplier relationship.

Suggested Citation

  • Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2013. "Are trade creditors relationship lenders?," Japan and the World Economy, Elsevier, vol. 25, pages 24-38.
  • Handle: RePEc:eee:japwor:v:25-26:y:2013:i::p:24-38 DOI: 10.1016/j.japwor.2013.01.002
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    Cited by:

    1. Gregory F Udell, 2015. "SME Access to Intermediated Credit: What Do We Know and What Don't We Know?," RBA Annual Conference Volume,in: Angus Moore & John Simon (ed.), Small Business Conditions and Finance Reserve Bank of Australia.
    2. TSURUTA Daisuke, 2007. "Credit Contagion and Trade Credit Supply: Evidence from Small Business Data in Japan," Discussion papers 07043, Research Institute of Economy, Trade and Industry (RIETI).
    3. Vigneron, Ludovic & Daïri, Meriam, 2013. "Caractéristiques informationnelles du secteur d'activité et recours au crédit fournisseur
      [Informational characteristics of industry secteurs and trade credit use]
      ," MPRA Paper 51689, University Library of Munich, Germany.
    4. Shenoy, Jaideep & Williams, Ryan, 2017. "Trade credit and the joint effects of supplier and customer financial characteristics," Journal of Financial Intermediation, Elsevier, pages 68-80.
    5. Hirofumi Uchida & Gregory F. Udell & Nobuyoshi Yamori, 2006. "Loan Officers and Relationship Lending," Discussion papers 06031, Research Institute of Economy, Trade and Industry (RIETI).
    6. Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2008. "Bank size and lending relationships in Japan," Journal of the Japanese and International Economies, Elsevier, pages 242-267.
    7. Kenshi Taketa & Gregory F. Udell, 2007. "Lending Channels and Financial Shocks: The Case of Small and Medium-Sized Enterprise Trade Credit and the Japanese Banking Crisis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(2), pages 1-44, November.
    8. Aoki, Masanao & Yoshikawa, Hiroshi, 2007. "Non-Self-Averaging in Macroeconomic Models: A Criticism of Modern Micro-founded Macroeconomics," Economics Discussion Papers 2007-49, Kiel Institute for the World Economy (IfW).
    9. Simon D. Smith & Martin Forster, 2013. "‘The Curse of the Caribbean’? Agency’s impact on the efficiency of sugar estates in St.Vincent and the Grenadines, 1814-1829," Oxford University Economic and Social History Series _112, Economics Group, Nuffield College, University of Oxford.
    10. Santiago Carbó Valverde & Francisco Rodríguez-Fernández & Gregory F. Udell, 2008. "Bank lending, financing constraints and SME investment," Working Paper Series WP-08-04, Federal Reserve Bank of Chicago.
    11. TSURUTA Daisuke, 2009. "Customer Relationships and the Provision of Trade Credit during a Recession," Discussion papers 09043, Research Institute of Economy, Trade and Industry (RIETI).
    12. Udell, Gregory F., 2008. "What's in a relationship The case of commercial lending," Business Horizons, Elsevier, vol. 51(2), pages 93-103.
    13. repec:eee:indorg:v:52:y:2017:i:c:p:333-357 is not listed on IDEAS

    More about this item

    Keywords

    Trade credit; Relationship lending; Credit availability; Information accumulation;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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