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Are Trade Creditors Relationship Lenders?

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  • Hirofumi Uchida
  • Gregory F. Udell
  • Wako Watanabe

Abstract

Despite the importance of the hypothesis that trade creditors may act as relationship lenders, it has been virtually impossible to directly test this hypothesis because of a lack of data. We attempt to overcome this problem by using a relatively new Japanese database on small and midsized enterprises (SMEs) that contains information on the strength of the buyer-seller relationship. We find some evidence that trade creditors may be relationship lenders. However, we also find evidence that trade creditors may be financial statement lenders. Our results are generally quite sensitive to model specification in both our "quantity" and "terms of credit" regressions. Thus, our results can only be viewed as suggestive of the possibility that trade creditors acquire private soft information over time and use this information to set the terms of trade financing.

Suggested Citation

  • Hirofumi Uchida & Gregory F. Udell & Wako Watanabe, 2006. "Are Trade Creditors Relationship Lenders?," Discussion papers 06026, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:06026
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    Cited by:

    1. Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2008. "Bank size and lending relationships in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(2), pages 242-267, June.
    2. Gregory F Udell, 2015. "SME Access to Intermediated Credit: What Do We Know and What Don't We Know?," RBA Annual Conference Volume (Discontinued), in: Angus Moore & John Simon (ed.),Small Business Conditions and Finance, Reserve Bank of Australia.
    3. Daisuke Tsuruta, 2013. "Customer relationships and the provision of trade credit during a recession," Applied Financial Economics, Taylor & Francis Journals, vol. 23(12), pages 1017-1031, June.
    4. 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).
    5. 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.
    6. WATANABE Wako, 2007. "How Do Relationship Lenders Price Loans to Small Firms?: "Hold-Up" Costs, Transparency, and Private and Public Security," Discussion papers 07058, Research Institute of Economy, Trade and Industry (RIETI).
    7. Kazuo Ogawa & Elmer Sterken & Ichiro Tokutsu, 2012. "Financial Distress And Industry Structure: An Inter-Industry Approach To The Lost Decade In Japan," Economic Systems Research, Taylor & Francis Journals, vol. 24(3), pages 229-249, April.
    8. Michel Alexandre & Gilberto Tadeu Lima, 2019. "Macroeconomic Impacts of Trade Credit: An Agent-Based Modeling Exploration," Working Papers, Department of Economics 2019_31, University of São Paulo (FEA-USP).
    9. Epstein, Brendan & Finkelstein Shapiro, Alan, 2019. "Financial development, unemployment volatility, and sectoral dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 99(C), pages 82-102.
    10. Marta Troya-Martinez, 2013. "Vertical Relational Contracts and Trade Credit," Economics Series Working Papers 648, University of Oxford, Department of Economics.
    11. Chim M. Lau & Ulrike Schaede, 2020. "Of substitutes and complements: trade credit versus bank loans in Japan, 1980–2012," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 305-326, July.
    12. 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.
    13. Shenoy, Jaideep & Williams, Ryan, 2017. "Trade credit and the joint effects of supplier and customer financial characteristics," Journal of Financial Intermediation, Elsevier, vol. 29(C), pages 68-80.
    14. Hirofumi Uchida & Gregory F. Udell & Nobuyoshi Yamori, 2006. "Loan Officers and Relationship Lending," Discussion papers 06031, Research Institute of Economy, Trade and Industry (RIETI).
    15. Santiago Carbo-Valverde & Francisco Rodriguez-Fernandez & Gregory F. Udell, 2008. "Bank lending, financing constraints and SME investment," Working Paper Series WP-08-04, Federal Reserve Bank of Chicago.
    16. Udell, Gregory F., 2008. "What's in a relationship The case of commercial lending," Business Horizons, Elsevier, vol. 51(2), pages 93-103.
    17. Troya-Martinez, Marta, 2017. "Self-enforcing trade credit," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 333-357.

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    More about this item

    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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