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Bank Loan Availability and Trade Credit Demand

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  • Morris G. Danielson
  • Jonathan A. Scott

Abstract

This paper investigates the effects of bank loan availability on the trade credit and credit card demand of small firms, using firm‐level data from the 1995 Credit, Banks, and Small Business Survey, conducted by the National Federation of Independent Business. We find that firms increase their demand for trade credit and credit card debt when facing credit constraints imposed by banks. These results provide evidence of a pecking order of debt financing, where firms increase their reliance on potentially expensive sources of funds when bank loans are not available.

Suggested Citation

  • Morris G. Danielson & Jonathan A. Scott, 2004. "Bank Loan Availability and Trade Credit Demand," The Financial Review, Eastern Finance Association, vol. 39(4), pages 579-600, November.
    • Handle: RePEc:bla:finrev:v:39:y:2004:i:4:p:579-600
    DOI: 10.1111/j.0732-8516.2004.00089.x
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    References listed on IDEAS

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