Bank credit and trade credit after the financial crisis: evidence from rural Galicia
Abstract
Access to external finance is a key challenge for the creation, survival and growth of SMEs. This article delves into the “weak funding” handicap of rural small firms (SEs): the access to bank financing and the substitutive role of trade credit for entrepreneurs in rural areas when they faced bank credit constraints. Considering SEs in Galicia (Spain), a paradigmatic case in Europe of rural areas in demographic decline with a strong impact of the Spanish sovereign and banking crisis of 2008–2012. There’s evidence of firms in rural areas facing a differential negative flow of bank credit during the financial crisis, especially in the manufacturing and construction sectors, that dissipated afterwards. Then, using a panel data approach that considers the determinants of trade credit, the complementary and substitutive hypotheses are tested to estimate the impact of bank credit restrictions over trade credit.
Keyword : trade credit, bank credit constraints, rural development, SME, SE, entrepreneur
How to Cite
Peón, D., & Guntín, X. (2021). Bank credit and trade credit after the financial crisis: evidence from rural Galicia. Journal of Business Economics and Management, 22(3), 616-635. https://doi.org/10.3846/jbem.2021.14270
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Pesaran, M. H., & Zhou, Q. (2018). Estimation of time-invariant effects in static panel data models. Econometric Reviews, 37(10), 1137–1171. https://doi.org/10.1080/07474938.2016.1222225
Petersen, M. A., & Rajan, R. G. (1997). Trade credit: Theories and evidence. Review of Financial Studies, 10(3), 661–691. https://doi.org/10.1093/rfs/10.3.661
Psillaki, M., & Daskalakis, N. (2009). Are the determinants of capital structure country or firm specific? Evidence from SMEs. Small Business Economics, 33(3), 319–329. https://doi.org/10.1007/s11187-008-9103-4
Psillaki, M., & Eleftheriou, K. (2015). Trade credit, bank credit, and flight to quality: Evidence from French SMEs. Journal of Small Business Management, 53(4), 1219–1240. https://doi.org/10.1111/jsbm.12106
Schwartz, R. A. (1974). An economic model of trade credit. Journal of Financial and Quantitative and Financial Analysis, 9(4), 643–657. https://doi.org/10.2307/2329765
Scott, J. (1977). Bankruptcy, secured debt and optimal capital structure. Journal of Finance, 32(1), 1–19. https://doi.org/10.1111/j.1540-6261.1977.tb03237.x
Siddiqui, T. A., & Siddiqui, K. I. (2020). FinTech in India: An analysis on impact of telecommunication on financial inclusion. Strategic Change, 29(3), 321–330. https://doi.org/10.1002/jsc.2331
Smith, J. K. (1987). Trade credit and informational asymmetry. Journal of Finance, 42(4), 863–872. https://doi.org/10.1111/j.1540-6261.1987.tb03916.x
Besser, T. L., & Miller, N. J. (2013). Community matters: Successful entrepreneurship in remote rural US locations. International Journal of Entrepreneurship and Innovation, 14(1), 15–27. https://doi.org/10.5367/ijei.2013.0104
Carbó-Valverde, S., Rodríguez-Fernández, F., & Udell, G. F. (2016). Trade credit, the financial crisis, and SME access to finance. Journal of Money, Credit and Banking, 48(1), 113–143. https://doi.org/10.1111/jmcb.12292
Cassia, L., & Vismara, S. (2009). Firms’ trade credit and the local level of development of the banking system in Europe. Investment Management and Financial Innovations, 6(4), 46–58.
Civelek, M., Ključnikov, A., Krištofík, P., & Rozsa, Z. (2019). Barriers in financing microenterprises from the perspective of Czech and Slovak microentrepreneurs. Journal of Business Economics and Management, 20(2), 244–267. https://doi.org/10.3846/jbem.2019.8114
European Commission. (2016, September 5–6). The Cork 2.0 Declaration 2016. In Cork 2.0 European Conference on Rural Development. Cork, Ireland. http://ec.europa.eu/agriculture/events/rural-development-2016_en.htm
de Castro, E. R., & Teixeira, E. C. (2012). Rural credit and agricultural supply in Brazil. Agricultural Economics, 43(3), 293–302. https://doi.org/10.1111/j.1574-0862.2012.00583.x
Del Gaudio, B. L., Porzio, C., & Verdoliva, V. (2018). Trade credit, SMEs and short-run survivorship: what we know and what we would like to know. Qualitative Research in Financial Markets, 10(4), 346–362. https://doi.org/10.1108/QRFM-02-2018-0014
Deloof, M., & La Rocca, M. (2014). Local financial development and the trade credit policy of Italian SMEs. Small Business Economics, 44, 905–924. https://doi.org/10.1007/s11187-014-9617-x
Deloof, M., La Rocca, M., & Vanacker, T. (2019). Local banking development and the use of debt financing by new firms. Entrepreneurship: Theory and Practice, 43(6), 1250–1276. https://doi.org/10.1177/1042258718783486
Erjavec, E., & Rickson, J. (2016, September 5–6). Identification of current role of innovation and knowledge policy in agriculture and rural development with brief reference to strengths and weaknesses. In Cork 2.0 Conference on Rural Development. Cork. https://ec.europa.eu/agriculture/sites/agriculture/files/events/2016/rural-development/ws3-erjavec_en.pdf
Friedline, T., Naraharisetti, S., & Weaver, A. (2020). Digital redlining: Poor rural communities’ access to fintech and implications for financial inclusion. Journal of Poverty, 24(5–6), 517–541. https://doi.org/10.1080/10875549.2019.1695162
Garcia-Appendini, E., & Montoriol-Garriga, J. (2013). Firms as liquidity providers: Evidence from the 2007–2008 financial crisis. Journal of Financial Economics, 109(1), 272–291. https://doi.org/10.1016/j.jfineco.2013.02.010
Gustafson, C. R. (2005). Rural small business trade credit: A paradox. Agricultural Finance Review, 65(1), 45–57. https://doi.org/10.1108/00214660580001166
Harris, M., & Raviv, A. (1990). Capital structure and the informational role of debt. The Journal of Finance, 45(2), 321–349. https://doi.org/10.1111/j.1540-6261.1990.tb03693.x
Hausman, J., & Taylor, W. (1981). Panel data and unobservable individual effects. Econometrica, 49(6), 1377–1398. https://doi.org/10.2307/1911406
Instituto de Crédito Oficial. (2014). Informe anual 2014. www.ico.es/web/ico/informe-anual
Instituto de Crédito Oficial. (2015). Informe anual 2015. www.ico.es/web/ico/informe-anual
Khanal, A. R., & Omobitan, O. (2020). Rural finance, capital constrained small farms, and financial performance: findings from a primary survey. Journal of Agricultural and Applied Economics, 52(2), 288–307. https://doi.org/10.1017/aae.2019.45
Kohardinata, C., Suhardianto, N., & Tjahjadi, B. (2020). Peer-to-peer lending platform: From substitution to complementary for rural banks. Business: Theory and Practice, 21(2), 713–722. https://doi.org/10.3846/btp.2020.12606
Martínez-Sola, C., García-Teruel, P. J., & Martínez-Solano, P. (2017). SMEs access to finance and the value of supplier financing. Revista Espanola de Financiación y Contabilidad, 46(4), 455–483. https://doi.org/10.1080/02102412.2017.1345196
McGuinness, G., & Hogan, T. (2016). Bank credit and trade credit: Evidence from SMEs over the financial crisis. International Small Business Journal, 34(4), 412–445. https://doi.org/10.1177/0266242614558314
Niskanen, J., & Niskanen, M. (2006). The determinants of corporate trade credit policies in a bankdominated financial environment: The case of Finnish small firms. European Financial Management, 12(1), 81–102. https://doi.org/10.1111/j.1354-7798.2006.00311.x
OECD. (2012). A Joint OECD/G20 GPFI Special Event on SME Finance. 19 April 2012, OECD Headquarters, Paris. https://www.oecd.org/cfe/smes/50112013.pdf
OECD. (2018, February 22–23). Enhancing SME access to diversified financing instruments [Discussion paper]. SME Ministerial Conference, Mexico City. https://www.oecd.org/cfe/smes/ministerial/documents/2018-SME-Ministerial-Conference-Plenary-Session-2.pdf
Palacín-Sánchez, M.-J., Canto-Cuevas, F.-J., & di Pietro, F. (2019). Trade credit versus bank credit: A simultaneous analysis in European SMEs. Small Business Economics, 53(4), 1079–1096. https://doi.org/10.1007/s11187-018-0101-x
Pesaran, M. H., & Zhou, Q. (2018). Estimation of time-invariant effects in static panel data models. Econometric Reviews, 37(10), 1137–1171. https://doi.org/10.1080/07474938.2016.1222225
Petersen, M. A., & Rajan, R. G. (1997). Trade credit: Theories and evidence. Review of Financial Studies, 10(3), 661–691. https://doi.org/10.1093/rfs/10.3.661
Psillaki, M., & Daskalakis, N. (2009). Are the determinants of capital structure country or firm specific? Evidence from SMEs. Small Business Economics, 33(3), 319–329. https://doi.org/10.1007/s11187-008-9103-4
Psillaki, M., & Eleftheriou, K. (2015). Trade credit, bank credit, and flight to quality: Evidence from French SMEs. Journal of Small Business Management, 53(4), 1219–1240. https://doi.org/10.1111/jsbm.12106
Schwartz, R. A. (1974). An economic model of trade credit. Journal of Financial and Quantitative and Financial Analysis, 9(4), 643–657. https://doi.org/10.2307/2329765
Scott, J. (1977). Bankruptcy, secured debt and optimal capital structure. Journal of Finance, 32(1), 1–19. https://doi.org/10.1111/j.1540-6261.1977.tb03237.x
Siddiqui, T. A., & Siddiqui, K. I. (2020). FinTech in India: An analysis on impact of telecommunication on financial inclusion. Strategic Change, 29(3), 321–330. https://doi.org/10.1002/jsc.2331
Smith, J. K. (1987). Trade credit and informational asymmetry. Journal of Finance, 42(4), 863–872. https://doi.org/10.1111/j.1540-6261.1987.tb03916.x