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The Role of Trade Credit for Small Firms: An Implication from Japan's Banking Crisis

Author

Listed:
  • Fukuda, Shin-ichi
  • 福田, 慎一
  • フクダ, シンイチ
  • Kasuya, Munehisa
  • 粕谷, 宗久
  • カスヤ, ムネヒサ
  • Akashi, Kentaro
  • 赤司, 健太郎

Abstract

Trade credit is one of the most important sources of short-term external finance for small firms. Previous literature has focused mainly on the substitution of bank loans for trade credit during monetary tightening among many firms, but in this paper we investigate the role of trade credit during the banking crisis in Japan. The basic motivation is to explore whether the substitution hypothesis still holds even under serious financial turbulence. Our main results suggest that the substitution hypothesis held in Japan when the banking sector was healthy, but broke down during the banking crisis. More precisely, both bank loans and trade credit contracted simultaneously during the crisis. Deteriorated bank health might have been primarily responsible for the widespread declines of credit to small and medium size firms in Japan during the banking crisis.

Suggested Citation

  • Fukuda, Shin-ichi & 福田, 慎一 & フクダ, シンイチ & Kasuya, Munehisa & 粕谷, 宗久 & カスヤ, ムネヒサ & Akashi, Kentaro & 赤司, 健太郎, 2006. "The Role of Trade Credit for Small Firms: An Implication from Japan's Banking Crisis," CEI Working Paper Series 2006-9, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2006-9
    Note: October, 2006
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    Cited by:

    1. Daisuke TSURUTA, 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).
    2. 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.
    3. Kazuo Ogawa & Elmer Sterken & Ichiro Tokutsu, 2013. "The trade credit channel revisited: evidence from micro data of Japanese small firms," Small Business Economics, Springer, vol. 40(1), pages 101-118, January.
    4. 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.
    5. Daisuke Tsuruta, 2013. "Credit Contagion and Trade Credit: Evidence from Small Business Data in Japan," Asian Economic Journal, East Asian Economic Association, vol. 27(4), pages 341-367, December.
    6. David O. Obuya, 2017. "Debt Financing Option and Financial Performance of Micro and Small Enterprises: A Critical Literature Review," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(3), pages 221-221, February.
    7. Maria Cristina Arcuri & Raoul Pisani, 2021. "Is Trade Credit a Sustainable Resource for Medium-Sized Italian Green Companies?," Sustainability, MDPI, vol. 13(5), pages 1-19, March.
    8. Yumeng Wu & Haiying Pan, 2022. "Can pay‐performance sensitivity cure zombie firms? Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 1080-1090, June.
    9. Maria Cristina Arcuri & Raoul Pisani, 2024. "Access to external credit during COVID-19: evidence from green SMEs in Italy," Review of Managerial Science, Springer, vol. 18(7), pages 1-30, July.
    10. Francisco-Javier Canto-Cuevas & María-José Palacín-Sánchez & Filippo Di Pietro, 2019. "Trade Credit as a Sustainable Resource during an SME’s Life Cycle," Sustainability, MDPI, vol. 11(3), pages 1-16, January.
    11. 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.
    12. María-José Palacín-Sánchez & Francisco-Javier Canto-Cuevas & Filippo di-Pietro, 2019. "Trade credit versus bank credit: a simultaneous analysis in European SMEs," Small Business Economics, Springer, vol. 53(4), pages 1079-1096, December.
    13. Ozan Güler & Mike Mariathasan & Klaas Mulier & Nejat G. Okatan, 2021. "The real effects of banks' corporate credit supply: A literature review," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1252-1285, July.
    14. Bastos, Rafael & Pindado, Julio, 2013. "Trade credit during a financial crisis: A panel data analysis," Journal of Business Research, Elsevier, vol. 66(5), pages 614-620.
    15. Hyun, Junghwan, 2017. "Trade credit behavior of Korean small and medium sized enterprises during the 1997 financial crisis," Journal of Asian Economics, Elsevier, vol. 50(C), pages 1-13.
    16. Baños-Caballero, Sonia & García-Teruel, Pedro J. & Martínez-Solano, Pedro, 2023. "Trade credit, creditor protection and banking crisis," Global Finance Journal, Elsevier, vol. 57(C).

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • 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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