Does Trade Credit Provides Favorable Information to Banks? Evidence from Japan
This article examines whether trade credit provides credible information about borrowerfs creditworthiness, thereby facilitating provision of bank credit. Using data on Japanese manufacturing firms over the period 1990-1995, our empirical analyses reveal that trade payables as a credible signal about borrowerfs creditworthiness facilitate the provision of short-term credit by less-informed banks. Consequently, in the firms that have armfs-length relations with banks, trade payables play an important role in mitigating asymmetric information problems between firms and banks, thereby facilitating extension of bank credit.
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