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Credit Contagion and Trade Credit: Evidence from Small Business Data in J apan
Author(s) -
Tsuruta Daisuke
Publication year - 2013
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/asej.12018
Subject(s) - trade credit , recession , economics , monetary economics , market liquidity , bankruptcy , credit default swap , accounts payable , cash , credit risk , finance , payment , keynesian economics
The present study investigates whether credit contagion leads to a decrease in trade credit for small businesses. In 1997–1998, the J apanese economy experienced a deep recession, and the domino effect caused an increase in the number of dishonored bills and bankruptcy filings. During a period of credit contagion, the possibility of default increases for firms with more financial claims and lower cash holdings. We find that during a recession, trade payables for small businesses with higher trade receivables and lower cash holdings are reduced. The hypothesis that the effects of credit risk on trade payables are weakened is not supported.