Trade Credit, Financial Intermediary Development, and Industry Growth

Recent empirical work has shown that financial development is important for economic growth, since well-developed financial markets are more effective at allocating capital to firms with high-value projects. This raises the question of whether firm...

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Main Authors:	Fisman, Raymond, Love, Inessa
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ACCOUNTING ACCOUNTING STANDARDS ADVERSE SELECTION ASSETS ASYMMETRIC INFORMATION BANK LENDING BANKING RELATIONSHIPS BORROWING CAPITAL EXPENDITURES CAPITAL MARKETS CAPITALIZATION CASH FLOW COAL COMPARATIVE ADVANTAGE CONTRACT ENFORCEMENT CREDIT CREDIT MARKETS CREDIT RATIONING CREDIT WORTHINESS CREDITOR DEBT DEMAND ELASTICITY DEPOSITS DEVELOPED COUNTRIES ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC HISTORY ECONOMIC PERFORMANCE ECONOMICS ECONOMICS LITERATURE ELASTICITY EQUITY MARKETS EXPENDITURES FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY DEVELOPMENT FINANCIAL INTERMEDIATION FINANCIAL LIBERALIZATION FINANCIAL MANAGEMENT FINANCIAL MARKETS FINANCIAL SECTOR FIXED COSTS GDP GDP PER CAPITA GROWTH RATE INDUSTRIALIZATION INFORMATION ACQUISITION INVENTORIES INVENTORY LIQUIDATION MARKET POWER MONETARY AUTHORITIES PER CAPITA INCOME PRICE DISCRIMINATION QUALITY RESOURCE ALLOCATION STOCK MARKETS STOCKS SUNK COSTS TRANSACTION COSTS VALUE ADDED WEALTH INTERNATIONAL TRADE CREDIT INTERMEDIARIES TRADE DEVELOPMENT FINANCIAL INTERMEDIARY ROLE INDUSTRY FINANCE GROWTH PATTERNS CAPITAL FLOW FUNDING CAPACITY CREDIT GUARANTEES WEALTH INTERNATIONAL TRADE
Online Access:	http://documents.worldbank.org/curated/en/2001/10/1615097/trade-credit-financial-intermediary-development-industry-growth http://hdl.handle.net/10986/19512

id	okr-10986-19512
recordtype	oai_dc
spelling	okr-10986-195122021-04-23T14:03:43Z Trade Credit, Financial Intermediary Development, and Industry Growth Fisman, Raymond Love, Inessa ACCOUNTING ACCOUNTING STANDARDS ADVERSE SELECTION ASSETS ASYMMETRIC INFORMATION BANK LENDING BANKING RELATIONSHIPS BORROWING CAPITAL EXPENDITURES CAPITAL MARKETS CAPITALIZATION CASH FLOW COAL COMPARATIVE ADVANTAGE CONTRACT ENFORCEMENT CREDIT CREDIT MARKETS CREDIT RATIONING CREDIT WORTHINESS CREDITOR DEBT DEMAND ELASTICITY DEPOSITS DEVELOPED COUNTRIES ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC HISTORY ECONOMIC PERFORMANCE ECONOMICS ECONOMICS LITERATURE ELASTICITY EQUITY MARKETS EXPENDITURES FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY DEVELOPMENT FINANCIAL INTERMEDIATION FINANCIAL LIBERALIZATION FINANCIAL MANAGEMENT FINANCIAL MARKETS FINANCIAL SECTOR FIXED COSTS GDP GDP PER CAPITA GROWTH RATE INDUSTRIALIZATION INFORMATION ACQUISITION INVENTORIES INVENTORY LIQUIDATION MARKET POWER MONETARY AUTHORITIES PER CAPITA INCOME PRICE DISCRIMINATION QUALITY RESOURCE ALLOCATION STOCK MARKETS STOCKS SUNK COSTS TRANSACTION COSTS VALUE ADDED WEALTH INTERNATIONAL TRADE CREDIT INTERMEDIARIES TRADE DEVELOPMENT FINANCIAL INTERMEDIARY ROLE INDUSTRY FINANCE GROWTH PATTERNS CAPITAL FLOW FUNDING CAPACITY FINANCIAL INSTITUTIONS CREDIT GUARANTEES WEALTH INTERNATIONAL TRADE Recent empirical work has shown that financial development is important for economic growth, since well-developed financial markets are more effective at allocating capital to firms with high-value projects. This raises the question of whether firms with high return projects in countries with poorly developed financial institutions, are able to draw on alternative sources of capital, to offset the effects of deficient (formal) financial intermediaries. Recent work suggests that implicit borrowing, in the form of trade credit, may provide one such source of funds. Using the methodology of Rajan and Zingales (1998), the authors show that in countries with relatively weak financial institutions, industries with greater dependence on trade credit financing (measured by the ratio of accounts payable to total assets) grow faster than industries that rely less on such credit. Furthermore, consistent with the notion that young firms may not use trade credit, the authors show that most of the effect they report, comes from growth in preexisting firms, rather than from an increase in the number of firms. 2014-08-20T19:30:39Z 2014-08-20T19:30:39Z 2001-10 http://documents.worldbank.org/curated/en/2001/10/1615097/trade-credit-financial-intermediary-development-industry-growth http://hdl.handle.net/10986/19512 English en_US Policy Research Working Paper;No. 2695 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ACCOUNTING ACCOUNTING STANDARDS ADVERSE SELECTION ASSETS ASYMMETRIC INFORMATION BANK LENDING BANKING RELATIONSHIPS BORROWING CAPITAL EXPENDITURES CAPITAL MARKETS CAPITALIZATION CASH FLOW COAL COMPARATIVE ADVANTAGE CONTRACT ENFORCEMENT CREDIT CREDIT MARKETS CREDIT RATIONING CREDIT WORTHINESS CREDITOR DEBT DEMAND ELASTICITY DEPOSITS DEVELOPED COUNTRIES ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC HISTORY ECONOMIC PERFORMANCE ECONOMICS ECONOMICS LITERATURE ELASTICITY EQUITY MARKETS EXPENDITURES FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY DEVELOPMENT FINANCIAL INTERMEDIATION FINANCIAL LIBERALIZATION FINANCIAL MANAGEMENT FINANCIAL MARKETS FINANCIAL SECTOR FIXED COSTS GDP GDP PER CAPITA GROWTH RATE INDUSTRIALIZATION INFORMATION ACQUISITION INVENTORIES INVENTORY LIQUIDATION MARKET POWER MONETARY AUTHORITIES PER CAPITA INCOME PRICE DISCRIMINATION QUALITY RESOURCE ALLOCATION STOCK MARKETS STOCKS SUNK COSTS TRANSACTION COSTS VALUE ADDED WEALTH INTERNATIONAL TRADE CREDIT INTERMEDIARIES TRADE DEVELOPMENT FINANCIAL INTERMEDIARY ROLE INDUSTRY FINANCE GROWTH PATTERNS CAPITAL FLOW FUNDING CAPACITY FINANCIAL INSTITUTIONS CREDIT GUARANTEES WEALTH INTERNATIONAL TRADE
spellingShingle	ACCOUNTING ACCOUNTING STANDARDS ADVERSE SELECTION ASSETS ASYMMETRIC INFORMATION BANK LENDING BANKING RELATIONSHIPS BORROWING CAPITAL EXPENDITURES CAPITAL MARKETS CAPITALIZATION CASH FLOW COAL COMPARATIVE ADVANTAGE CONTRACT ENFORCEMENT CREDIT CREDIT MARKETS CREDIT RATIONING CREDIT WORTHINESS CREDITOR DEBT DEMAND ELASTICITY DEPOSITS DEVELOPED COUNTRIES ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC HISTORY ECONOMIC PERFORMANCE ECONOMICS ECONOMICS LITERATURE ELASTICITY EQUITY MARKETS EXPENDITURES FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY DEVELOPMENT FINANCIAL INTERMEDIATION FINANCIAL LIBERALIZATION FINANCIAL MANAGEMENT FINANCIAL MARKETS FINANCIAL SECTOR FIXED COSTS GDP GDP PER CAPITA GROWTH RATE INDUSTRIALIZATION INFORMATION ACQUISITION INVENTORIES INVENTORY LIQUIDATION MARKET POWER MONETARY AUTHORITIES PER CAPITA INCOME PRICE DISCRIMINATION QUALITY RESOURCE ALLOCATION STOCK MARKETS STOCKS SUNK COSTS TRANSACTION COSTS VALUE ADDED WEALTH INTERNATIONAL TRADE CREDIT INTERMEDIARIES TRADE DEVELOPMENT FINANCIAL INTERMEDIARY ROLE INDUSTRY FINANCE GROWTH PATTERNS CAPITAL FLOW FUNDING CAPACITY FINANCIAL INSTITUTIONS CREDIT GUARANTEES WEALTH INTERNATIONAL TRADE Fisman, Raymond Love, Inessa Trade Credit, Financial Intermediary Development, and Industry Growth
relation	Policy Research Working Paper;No. 2695
description	Recent empirical work has shown that financial development is important for economic growth, since well-developed financial markets are more effective at allocating capital to firms with high-value projects. This raises the question of whether firms with high return projects in countries with poorly developed financial institutions, are able to draw on alternative sources of capital, to offset the effects of deficient (formal) financial intermediaries. Recent work suggests that implicit borrowing, in the form of trade credit, may provide one such source of funds. Using the methodology of Rajan and Zingales (1998), the authors show that in countries with relatively weak financial institutions, industries with greater dependence on trade credit financing (measured by the ratio of accounts payable to total assets) grow faster than industries that rely less on such credit. Furthermore, consistent with the notion that young firms may not use trade credit, the authors show that most of the effect they report, comes from growth in preexisting firms, rather than from an increase in the number of firms.
format	Publications & Research :: Policy Research Working Paper
author	Fisman, Raymond Love, Inessa
author_facet	Fisman, Raymond Love, Inessa
author_sort	Fisman, Raymond
title	Trade Credit, Financial Intermediary Development, and Industry Growth
title_short	Trade Credit, Financial Intermediary Development, and Industry Growth
title_full	Trade Credit, Financial Intermediary Development, and Industry Growth
title_fullStr	Trade Credit, Financial Intermediary Development, and Industry Growth
title_full_unstemmed	Trade Credit, Financial Intermediary Development, and Industry Growth
title_sort	trade credit, financial intermediary development, and industry growth
publisher	World Bank, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2001/10/1615097/trade-credit-financial-intermediary-development-industry-growth http://hdl.handle.net/10986/19512
_version_	1764439921726062592

Trade Credit, Financial Intermediary Development, and Industry Growth

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