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Does Trade Credit Substitute Bank Credit? Evidence from Firm-level Data
Article first published online: 5 JUL 2005
Volume 34, Issue 1, pages 85–112, February 2005
How to Cite
Blasio, G. d. (2005), Does Trade Credit Substitute Bank Credit? Evidence from Firm-level Data. Economic Notes, 34: 85–112. doi: 10.1111/j.0391-5026.2005.00145.x
The author thanks Giorgio Albareto, Luigi Cannari, Amanda Carmignani, Salvatore Chiri, Eugenio Gaiotti, Andrea Generale, Luigi Guiso, Inessa Love, Massimo Omiccioli, Carmelo Salleo and two anonymous referees for their helpful comments and Diego Caprara for help with the data. The views expressed herein are those of the author and not necessarily those of the Bank of Italy.
- Issue published online: 5 JUL 2005
- Article first published online: 5 JUL 2005
The paper examines micro data on Italian manufacturing firms’ inventory behaviour to test the Meltzer (1960) hypothesis according to which firms substitute bank credit with trade credit (TC) during money tightening. We find that inventory investment of Italian manufacturing firms is constrained by their availability of TC and that this effect more than doubles during monetary restrictions. As for the magnitude of the substitution effect, however, we find that it is not sizeable. This is in line with the micro theories of TC and the evidence on actual firm practices, according to which credit terms display modest variations over time.