Trade Credit and Bank Loan Around Financial Crisis: Study on Emerging Markets

Abstract

This study investigates the relationship between bank loan and trade credit from both demand and supply side. The study uses firm-level data of 19,065 non-financial firms from 25 emerging economies divided into three regions of the world vis-à-vis Americas, Europe, Middle East & Africa (EMEA) and Asia. Moreover, we divide the entire data set into two equal halves based on firms’ size—large and small. Our analysis suggests a significant complementary relationship between the two modes of financing for all firms. However, for large firms, bank loan shows a complementary relationship with trade credit receivable while substitution relationship with trade credit payable around financial crisis. Moreover, for firms in EMEA region, bank loan shows a complementary relationship with trade credit payable while substitution relationship with trade credit receivable. Using year dummies shows an overall decrease in use of trade credit during financial crisis. However, firms in Americas and EMEA tend to increase the demand while decrease the extension of trade credit. JEL Classification: G21, G32