Firms as Financial Intermediaries : Evidence from Trade Credit Data
The authors argue that non-financial firms act as intermediaries, by channeling short-term funds from the financial institutions in an economy, to their best use. Non-financial firms act in this way because they may have a comparative advantage in...
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/10/1615098/firms-financial-intermediaries-evidence-trade-credit-data http://hdl.handle.net/10986/19511 |
| Summary: | The authors argue that non-financial
firms act as intermediaries, by channeling short-term funds
from the financial institutions in an economy, to their best
use. Non-financial firms act in this way because they may
have a comparative advantage in exploiting informal means of
ensuring that borrowers repay. These considerations suggest
that to optimally exploit their advantage in providing trade
credit to some classes of borrowers, firms should obtain
external financing from financial intermediaries, and
markets, when this is efficient. Thus the existence of a
large banking system is consistent with these
considerations. Using firm-level data for thirty nine
countries, the authors compute turnovers in payables, and
receivables, and examine how they differ across financial
systems. They find that the development level of a
country's legal infrastructure, and banking system
predicts the use of trade credit. Firms' use of bank
debt is higher relative to their use of trade credit in
countries with efficient legal systems. Bur firms in
countries with large, privately owned banking systems, offer
more financing to their customers, and take more financing
from them. The authors' findings suggest that trade
credit is a complement to lending by financial
intermediaries, and should not be viewed by policymakers as
a substitute. |
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