Business, Management and Accounting
4 years ago

Trade credit eases bank credit rationing for Canadian firms, study finds.

RePEc: Research Papers in Economics
Trade Credit and Credit Rationing in Canadian Firms
Rose Cunningham

Paper Summary

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Trade credit is used by medium and low-wealth Canadian firms to help with bank credit rationing. A study of over 28,000 firms shows that medium-wealth firms use trade credit to ease bank credit constraints, while low-wealth firms are constrained in both bank and trade credit markets. Few high-wealth firms are unconstrained. Low-wealth, declining, and distressed firms provide more trade credit than healthier firms, possibly due to market power exploitation by their customers.