The Interdependence between Trade Credit and Bank Lending: Commitment in Intermediary Firm Relationships


  • Ana Paula Matias Gama,

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    • Ana Paula Matias Gama is assistant professor in the Department of Management and Economic at the University of Beira Interior, Covilhã, Portugal.
  • Howard Van Auken

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    • Address correspondence to: Howard Van Auken, Iowa State University, 3363 Gerdin, Ames, IA 50011. E-mail:

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    • Howard Van Auken is university professor of Management of Iowa State University, Ames, IA.


This study investigates the interdependence between trade and bank credit among 468 Portuguese small and medium-sized enterprises (SMEs). The results show that a single bank relationship is prevalent among Portuguese SMEs, indicating that the proprietary borrower information that banks obtain through their relationship results in an information monopoly that creates a holdup problem and leads to high interest rates. Suppliers that can control their customers' credit risk may provide additional credit and thus help alleviate concerns associated with holdup costs. Trade credit is a viable alternative to short-term debt, especially when firms' main bank is unwilling to increase its exposure to liquidity constraints.