Trade credit and access to finance of retailers in Ethiopia
There is lower use of trade credit in areas with more access to bank finance
Abstract
Using data on 5,500 Ethiopian retailers, we document that there is lower use of trade credit in areas with more access to bank finance. Among firms within an area, however, receiving a bank loan increases the use of trade credit by informal firms, but has no association with trade credit of formal firms. This result suggests that relationship with banks acts as a signal of creditworthiness of informal firms which are usually more credit constrained due to agency problems. In contrast, formal firms, registered under state authorities, have more transparent operations preferred by formal lenders. As an additional empirical evidence, we also find that firms with a female owner are more willing to lend trade credit but less likely to obtain it.
Citation
Beck, T. H. L., Hoseini, M., & Uras, B. (2017). Trade Credit and Access to Finance of Retailers in Ethiopia. (DFID Working Paper). Tilburg: Tilburg University
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