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Credit Quality And Substitution In Sme Finance

Author

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  • LARS NORDEN

    (Brazilian School of Public and Business Administration, Getulio Vargas Foundation, Brazil†EPGE Brazilian School of Economics and Finance, Getulio Vargas Foundation, Brazil)

  • STEFAN VAN KAMPEN

    (#x2021;Rotterdam School of Management, Erasmus University, Netherlands)

  • MANUEL ILLUECA

    (#xA7;Universitat Jaume I, Spain)

Abstract

We investigate whether and how SMEs’ credit quality influences their substitution of bank credit for trade credit. Using data from the five largest European countries, we find that substitution of bank credit for trade credit decreases during the financial crisis, but it decreases significantly less for ex ante low credit quality firms. We control for pre-crisis or lagged firm characteristics including size and external finance dependence, industry effects, sample selection effects and cross-country heterogeneity. We also find that low credit quality firms increase their absolute and relative trade credit usage significantly more than high credit quality firms during the financial crisis. The effects are consistent across countries and stronger for net trade credit borrowers and financially constrained firms. The evidence highlights how credit quality influences demand-side driven substitution in SME finance.

Suggested Citation

  • Lars Norden & Stefan Van Kampen & Manuel Illueca, 2021. "Credit Quality And Substitution In Sme Finance," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-26, June.
    • Handle: RePEc:wsi:jfmmix:v:09:y:2021:i:01:n:s2282717x21500055
    DOI: 10.1142/S2282717X21500055
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    Cited by:

    1. Andrea Bellucci & Gianluca Gucciardi, 2023. "A Turning Point for Banking: Unravelling the Changing Landscape of Banking Activity in Europe since the COVID-19 pandemic," Mo.Fi.R. Working Papers 183, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    2. Mrabti, Nassim & Hamani, Nadia & Boulaksil, Youssef & Amine Gargouri, Mohamed & Delahoche, Laurent, 2022. "A multi-objective optimization model for the problems of sustainable collaborative hub location and cost sharing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).

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