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Bank Loan Availability and Trade Credit Demand
Author(s) -
Danielson Morris G.,
Scott Jonathan A.
Publication year - 2004
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.0732-8516.2004.00089.x
Subject(s) - trade credit , credit history , business , financial system , credit reference , credit card interest , loan , installment credit , finance , debt , credit crunch , credit card , bank credit , payment , credit risk
This paper investigates the effects of bank loan availability on the trade credit and credit card demand of small firms, using firm‐level data from the 1995 Credit, Banks, and Small Business Survey, conducted by the National Federation of Independent Business. We find that firms increase their demand for trade credit and credit card debt when facing credit constraints imposed by banks. These results provide evidence of a pecking order of debt financing, where firms increase their reliance on potentially expensive sources of funds when bank loans are not available.