Trade Credit and Credit Rationing in Canadian Firms

Abstract

, seminar participants at the Bank of Canada and Statistics Canada, and an anonymous reviewer at Statistics Canada for helpful comments. I am very grateful to the Microeconomic Analysis Division of Statistics Canada for providing access to the data and supporting this research through their Ph.D. Stipend program.

Trade Credit or Bank Credit? – Lessons Learned from Hungarian Firms between 2010 and 2015

“…The relationship between the two forms of external funding was investigated empirically on samples of US firms by Nilsen (2002), Canadian firms by Cunningham (2005), and Chinese firms by Ying, Guo and Yang (2014). Most of their findings are consistent with Burkart and Ellingsen's theory.…”

“…If we accept that we were overly lenient in selecting the wealth threshold, then zero effect could mean that the sub-sample includes firms characterised by substitution as well as firms characterised by complementarity. By way of comparison to research carried out on Canadian data for similar purposes, Cunningham (2005) did not succeed in identifying the third category, but did identify complementarity in the first category and then substitution in the second. …”

“…e.g. Petersen and Rajan 1997, Nilsen 2002, Cunningham 2005, or Bougheas, Mateut and Mizen 2007) that instead of using the AP/Sales ratio to derive the Days Payable Outstanding (AP/ COST_SALES × 365) variable, it is used as a measure of the size of accounts payable, normalised for the size of sales. For the sake of international comparability, we have opted for the latter variable.…”

“…The first idea for constructing Equation (1A) came from Cunningham (2005), but we use different set of base and control variables. Equation (1B) explores the relationship of accounts payable and long-term credit in order to determine whether firms increase their long-term credit by increasing trade credit.…”

“…We rely on Burkart and Ellingsen's (2004) -as well as corporate profitability (low, medium and high EBIT/ASSET), in contrast to the empirical work of Cunningham (2005), who used firms' "wealth" (i.e. profit, a proxy for the size of internal or own funds) to measure the presence of financial constraints.…”