Trade Credit, Bank Credit, and Flight to Quality: Evidence from French SMEs


  • Maria Psillaki,

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    • Address correspondence to: Maria Psillaki, Department of Economics, University of Piraeus, 80 Karaoli & Dimitriou Str., 18534 Piraeus, Greece. E-mail:

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    • Maria Psillaki is assistant professor of Economics and Finance in the Department of Economics at the University of Piraeus.
  • Konstantinos Eleftheriou

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    • Konstantinos Eleftheriou is assistant professor of Economics in the College of Business Administration at Abu Dhabi University.


This paper investigates the impact of the global financial crisis on the allocation of credit to small and medium-sized enterprises (SMEs). Using samples of French SMEs from four industries, we found support for the prediction of the flight-to-quality hypothesis that in bad times, credit flows away from smaller constrained firms to larger, higher grade firms. We also examined the relation between bank credit and trade credit in terms of two hypotheses: the substitution hypothesis and the complementary hypothesis. The results of fixed effects panel regressions showed that trade credit for small firms during periods of tight money acts generally as complement rather than substitute to bank credit, thus providing empirical support for the redistribution view of trade credit.