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Trade Credit and Bank Lending: An Investigation into the Determinants of UK Manufacturing Firms' Access to Trade Credit

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  • Simona MATEUT
  • Paul MIZEN

Abstract

Trade credit is an important source of finance for firms, but it has typically been excluded from the analysis of the credit channel. In this paper we examine a panel of 16,000 manufacturing firm records for the years 1990 through 1999. We show that the uptake of trade credit varies with the monetary cycle, increasing when interest rates are high and falling when rates fall; this offers indirect evidence in support of the bank lending channel. We discover that suppliers evaluate the creditworthiness of firms on much the same basis as banks, with solvency, credit risk and age all improving the access to trade credit. We conclude that trade credit is taken up by firms as a substitute for bank finance at the margin when they are credit constrained.

Suggested Citation

  • Simona MATEUT & Paul MIZEN, 2003. "Trade Credit and Bank Lending: An Investigation into the Determinants of UK Manufacturing Firms' Access to Trade Credit," Economics Working Papers ECO2003/03, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2003/03
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    Cited by:

    1. Díaz Serrano, Lluís & Sackey, Frank G., 2016. "Empowering the vulnerable to be entrepreneurs: An empirical test on the efectiveness of the Ghana microfinance policy 2006," Working Papers 2072/267084, Universitat Rovira i Virgili, Department of Economics.
    2. Diaz-Serrano, Luis & Sackey, Frank Gyimah, 2016. "Empowering the Vulnerable to Be Entrepreneurs: An Empirical Test on the Effectiveness of the Ghana Microfinance Policy 2006," IZA Discussion Papers 10323, Institute of Labor Economics (IZA).
    3. Domenico Delli Gatti & Mauro Gallegati & Bruce Greenwald & Alberto Russo & Joseph Stiglitz, 2009. "Business fluctuations and bankruptcy avalanches in an evolving network economy," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 4(2), pages 195-212, November.
    4. repec:zbw:bofitp:2006_008 is not listed on IDEAS
    5. Ignacio Munyo, 2004. "The Determinants of Capital Structure: Evidence from an Economy without Stock Market," Econometric Society 2004 Latin American Meetings 267, Econometric Society.
    6. Coricelli, Fabrizio & Égert, Balázs & MacDonald, Ronald, 2006. "Monetary transmission mechanism in Central and Eastern Europe: gliding on a wind of change," BOFIT Discussion Papers 8/2006, Bank of Finland Institute for Emerging Economies (BOFIT).

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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