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

摘要

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.