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Bank borrowing constraints and the demand for trade credit: evidence from panel data

Atanasova, C.V. and Wilson, N. (2003) Bank borrowing constraints and the demand for trade credit: evidence from panel data. Managerial and Decision Economics, 24 (6-7). pp. 503-514. ISSN 0143-6570

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Abstract

Monetary policy contractions exacerbate credit constraints stemming from asymmetric information, incentive problems and limited collateral. During such periods financial intermediaries reduce the supply of credit to smaller businesses. Although trade credit is a less desirable alternative of corporate financing, it may play a special role in alleviating credit rationing. This paper is an empirical investigation of the interaction of monetary policy, credit market conditions and corporate financing over the business cycle. It provides a simple test of the existence of a credit channel of monetary policy transmissions. Using individual firm data we find that during periods of tight money the proportion of bank-borrowing constrained firms increases. Borrowing constrained films are found to substitute away from bank credit to trade credit. Such evidence supports the existence of a credit channel of monetary policy transmission: firms do not voluntarily cut bank loans (e.g. because of demand slowdown) since they increase their demand for a less desirable alternative (trade credit).

Item Type: Article
Academic Units: The University of Leeds > Faculty of Business
The University of York > Economics and Related Studies (York)
Depositing User: York RAE Import
Date Deposited: 07 Apr 2009 16:34
Last Modified: 07 Apr 2009 16:35
Published Version: http://dx.doi.org/10.1002/mde.1134
Status: Published
Publisher: John Wiley & Sons, Ltd
Identification Number: 10.1002/mde.1134
URI: http://eprints.whiterose.ac.uk/id/eprint/6981

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