Trade Credits and Bank Credits in International Trade: Substitutes or Complements?


  • The authors would like to thank the Economics and Business Data Center (EBDC) of the ifo Institute for access to the EBDC Business Expectations Panel. The project has benefited from financial support through the Deutsche Forschungsgemeinschaft (German Science Foundation) under SFB-Transregio 15 and the Bavarian Graduate Program in Economics. The authors would like to thank the editor and two anonymous referees as well as Kalina Manova, Ralph Ossa, Daniel Schunk, Till von Wachter, Joachim Winter, and several conference and seminar participants for helpful comments and suggestions.


Trade credits are an important financing tool for internationally active firms. This is surprising, as trade credits are generally more expensive than bank credits and thus a costly substitute for bank financing. In this paper, we investigate the relation between trade credits and bank credits for exporting firms. We develop a theoretical model and show that trade credits convey a quality signal which reduces the risk of the transaction and may thus facilitate obtaining additional bank credits. Hence, exporters who are not able to obtain bank credits in the first place use trade credits and bank credits complementarily. Using panel data on large German manufacturing firms, we provide supportive evidence for our theoretical predictions. In general, trade credits and bank credits are substitutes. For financially constrained exporters, the overall substitution effect is attenuated which is consistent with a positive signalling effect.