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Does Trade Credit Really Help Relieving Financial Constraints? An analysis on a sample of Italian firms

Author

Listed:
  • Stefania Cosci

    (LUMSA University)

  • Roberto Guida

    (UNINT University of Rome)

  • Valentina Meliciani

    (LUISS University)

Abstract

The European Union introduced a Directive aimed at reducing the use of trade credit because it is supposed to affect negatively the European economy. This contrasts with the “redistribution view” arguing that trade credit may allow the financing of credit constrained firms by their more liquid suppliers. Previous empirical analyses found some support for this view but they did not distinguish between net borrowers and net lenders. We show that in Italy the probability to be a net borrower is higher for those firms that are not likely to be credit constrained and that have more market power. Consistently with this result, the substitutability between trade debt and bank short-term debt occurs only for net lenders. These findings cast some doubts on the positive role of trade credit in relieving financial constraints and suggest that regulating late payments can protect vulnerable suppliers from more powerful buyers.

Suggested Citation

  • Stefania Cosci & Roberto Guida & Valentina Meliciani, 2017. "Does Trade Credit Really Help Relieving Financial Constraints? An analysis on a sample of Italian firms," CERBE Working Papers wpC20, CERBE Center for Relationship Banking and Economics.
    • Handle: RePEc:lsa:wpaper:wpc20
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    File URL: https://repec.lumsa.it/wp/wpC20.pdf
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    Keywords

    Banks; Trade Credit;

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