Premium
Does Trade Credit Substitute Bank Credit? Evidence from Firm‐level Data
Author(s) -
Blasio Guido de
Publication year - 2005
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/j.0391-5026.2005.00145.x
Subject(s) - trade credit , bank credit , inventory investment , monetary economics , investment (military) , economics , substitution (logic) , business , finance , econometrics , politics , political science , law , computer science , programming language
The paper examines micro data on Italian manufacturing firms’ inventory behaviour to test the Meltzer (1960) hypothesis according to which firms substitute bank credit with trade credit (TC) during money tightening. We find that inventory investment of Italian manufacturing firms is constrained by their availability of TC and that this effect more than doubles during monetary restrictions. As for the magnitude of the substitution effect, however, we find that it is not sizeable. This is in line with the micro theories of TC and the evidence on actual firm practices, according to which credit terms display modest variations over time .