Abstract
Trade credit and bank credit constitute two of the most important external sources of finance for small firms. The purpose of this paper, first and foremost, is to explore the complementary or substitutive relationship between trade credit and bank credit by considering the joint determination of both resources on small and medium-sized enterprises (SMEs), and second, it analyses how the country institutional factors affect these two resources. Specifically, we introduce the efficiency of the legal system and the development of the financial sector. For the empirical analysis, we use a simultaneous equations model across a sample of 60,377 SMEs operating in 12 European Union countries over the period 2008–2014. The results suggest that two resources, trade credit and short-term bank credit, are simultaneously determined and negatively related in SMEs. The results also suggest that trade credit and bank credit depend on country institutional factors.
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Notes
In contrast to our research, the empirical studies of Casey and O’Toole (2014) and Andrieu et al. (2018) are based on the data of the SME Access to Finance survey carried out on behalf of the European Commission.
As in other empirical studies, Luxemburg, Malta and Cyprus are excluded due to their particular characteristics and residual relevance.
The countries are sorted alphabetically by their EU identifier in the text and in the tables.
Both variables are obtained from the World Bank.
“Appendix Table 11” provides results using various econometric techniques: ordinary least squares (OLS), fixed effects (FE) and three-stage least squares (3SLS). The coefficients are in line with those estimated by GMM.
These results are not included in the article but can be provided by the authors upon request.
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We are indebted to two anonymous reviewers for their valuable comments and suggestions. We remain responsible for any errors or omissions.
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Palacín-Sánchez, MJ., Canto-Cuevas, FJ. & di-Pietro, F. Trade credit versus bank credit: a simultaneous analysis in European SMEs. Small Bus Econ 53, 1079–1096 (2019). https://doi.org/10.1007/s11187-018-0101-x
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DOI: https://doi.org/10.1007/s11187-018-0101-x