Firms as credit suppliers: an empirical study of Spanish firms
Olga María Rodríguez-Rodríguez
Purpose – The purposes of the study are to: contribute evidence on the role played by ordinary commercial firms in providing finance to other firms by granting trade credit to customers; and test some theories about the motives of small and medium-sized firms in extending such trade credit. Design/methodology/approach – The Generalised Method of Moments is applied to an unbalanced panel of small and medium-sized firms in the Canary Islands (Spain). Analysis of data from a unique database is used to obtain consistent estimations and to test some proposed hypotheses about the determinants of extending trade credit. Findings – The study finds that: firms with greater access to financial markets can serve as a credit channel for clients that have difficulties in obtaining institutional financing (thus supporting the theory of financial advantage with respect to trade credit); firms can reduce transaction costs through financing clients (thus confirming that “transaction motives” are significant in granting trade credit); and that trade credit between firms known to each other reduces problems associated with information asymmetry in financial arrangements. Research limitations/implications – The findings represent correlated inferences, rather than proven causal relationships. Moreover, some results are interpretive in nature; more detailed data and analyses could assist in investigating the relationships noted here. Originality/value – The paper contributes to the scarce empirical literature about the motives for granting trade credit by small and medium-sized firms. This is also the first study to analyse this behaviour from a dataset of firms in the Canary Islands (Spain).
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