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The effect of trade credit on firm performance: Evidence from Korean firms during the Global Financial Crisis

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  • Heo, Ye Jin

Abstract

This paper empirically investigates the effects of two primary types of debt financing − bank credit and trade credit − on firm sales performance during the Global Financial Crisis using Korean firm-level data. I find that firms who relied more on bank credit tended to have slower sales growth, whereas those relied more on trade credit performed better during the crisis and afterwards. However, the mitigating effect of trade credit did not exist for exporters. Also, there was evidence of heterogeneous effect of trade credit among non-exporters, depending on firms' degree of financial access; the effect of trade credit during the crisis significantly diminished for firms with better financial access. The findings overall indicate that for domestic firms with limited financial access trade credit was a more stable type of financing than bank credit, limiting the deteriorating effect of financing on firm performance.

Suggested Citation

  • Heo, Ye Jin, 2024. "The effect of trade credit on firm performance: Evidence from Korean firms during the Global Financial Crisis," Journal of International Money and Finance, Elsevier, vol. 140(C).
    • Handle: RePEc:eee:jimfin:v:140:y:2024:i:c:s0261560623001882
    DOI: 10.1016/j.jimonfin.2023.102987
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    More about this item

    Keywords

    Financial crisis; Bank credit; Trade credit; Financial access;
    All these keywords.

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - 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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