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Trade Credits and Bank Credits in International Trade: Substitutes or Complements?

Author

Listed:
  • Martina Engemann
  • Katharina Eck
  • Monika Schnitzer

Abstract

Trade credits are an important financing tool for internationally active firms. This is surprising, as trade credits are generally more expensive than bank credits and thus a costly substitute for bank financing. In this paper, we investigate the relation between trade credits and bank credits for exporting firms. We develop a theoretical model and show that trade credits convey a quality signal which reduces the risk of the transaction and may thus facilitate obtaining additional bank credits. Thus, for exporters who are not able to obtain bank credits in the first place, trade credits and bank credits are complements. Using panel data on German manufacturing firms, we provide supportive evidence for our theoretical predictions. For financially unconstrained firms, trade credits and bank credits are substitutes. For financially constrained exporters, instead, trade credits have a significantly positive effect on the availability of bank credits.

Suggested Citation

  • Martina Engemann & Katharina Eck & Monika Schnitzer, 2011. "Trade Credits and Bank Credits in International Trade: Substitutes or Complements?," Working Papers 108, Bavarian Graduate Program in Economics (BGPE).
    • Handle: RePEc:bav:wpaper:108_engemanneckschnitzer
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade Credits; Bank Credits; International Trade; Financial Constraints;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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