Trade Credit, Bank Credit and Financial Crisis*

Abstract

ABSTRACT This paper examines trade credit behavior in a sample of small and medium enterprises in four East Asian countries before and after the financial crisis of 1998. We use a unique dataset that contains detailed data on trade credit amount and contract terms along with data on access to finance. We find that after the crisis, firms constrained in bank finance receive less trade credit in terms of percent of inputs bought on credit and shorter time of repayment. They also reduce credit extension to their customers in terms of quantity and length of time, due to a smaller pool of available finance. Discount terms rise on both receivables and payables. Our evidence does not support the hypothesis that trade credit can substitute for bank credit in times of the crisis, and instead suggests that liquidity shocks are propagated along the supply chains.

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