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How Trade Credit Differs from Loans: Evidence from Japanese Trading Companies

  • Iichiro Uesugi
  • Guy M. Yamashiro

In this paper we examine the determinants of the relationship between trade credit and bank loans. Previous studies of this relationship fall into two categories: (1) those emphasizing the difference between financial and non-financial institutions, and (2) those emphasizing the difference between credit instruments. By using data on trading companies that supply both loans and trade credit we are able to determine the relative importance of both institutional differences and instrumental differences for the trade credit-loan relationship. We find that trade credit and loans differ significantly even when offered by the same institutions, while loans extended by financial institutions and those extended by non-financial enterprises respond similarly.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 04028.

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Length: 47 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:eti:dpaper:04028
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  1. Mike Burkart & Tore Ellingsen, 2004. "In-Kind Finance: A Theory of Trade Credit," American Economic Review, American Economic Association, vol. 94(3), pages 569-590, June.
  2. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-72, September.
  3. Ferris, J Stephen, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 243-70, May.
  4. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, vol. 43(5), pages 1127-41, December.
  5. Koichiro Kamada & Kazuto Masuda, 2000. "Effects of Measurement Error on the Output Gap in Japan," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
  6. Mitchell A. Petersen & Raghuram G. Rajan, 1996. "Trade Credit: Theories and Evidence," NBER Working Papers 5602, National Bureau of Economic Research, Inc.
  7. Mariassunta Giannetti & Mike Burkart & Tore Ellingsen, 0. "What You Sell Is What You Lend? Explaining Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 1261-1298.
  8. James E. Rauch, 1996. "Trade and Search: Social Capital, Sogo Shosha, and Spillovers," NBER Working Papers 5618, National Bureau of Economic Research, Inc.
  9. Sheard, Paul, 1989. "The Japanese general trading company as an aspect of interfirm risk-sharing," Journal of the Japanese and International Economies, Elsevier, vol. 3(3), pages 308-322, September.
  10. Mitchell Berlin, 2003. "Trade credit: why do production firms act as financial intermediaries?," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 21-28.
  11. Ono, Masanori, 2001. "Determinants of Trade Credit in the Japanese Manufacturing Sector," Journal of the Japanese and International Economies, Elsevier, vol. 15(2), pages 160-177, June.
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