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Does Trade Credit Provides Favorable Information to Banks? Evidence from Japan (Tanaka T.)

Bank Lending Information Asymmetry and Transparency

Abstract This paper examines whether trade credit as a credible signal about firmfs creditworthiness to banks facilitates provision of bank credit to the firms receiving trade credit. Using data on Japanese manufacturing firms over the period 1990-1995, we find that firms receiving trade credit are provided short-term credit by less-informed banks. Consequently, in the firms that have armfs-length relations with banks, trade credit plays an important role in mitigating asymmetric information problems between firms and banks, thereby facilitating extension of bank credit.
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Libref/ Tanaka T. (2010) “Does Trade Credit Provides Favorable Information to Banks? Evidence from Japan”, Discussion Paper in Economics and Business № 09-22-Rev., pp. 1-12
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