The Impact of Financial Development on the Relationship between Trade Credit, Bank Credit, and Firm Characteristics: A Study on Firm-Level Data from Six MENA Countries

Jézabel Couppey-Soubeyran 1  and Jérôme Héricourt 2
  • 1 University of Paris 1, Centre d’Economie de la Sorbonne, Paris
  • 2 EQUIPPE-Universités de Lille, Lille, Centre d’Economie de la Sorbonne – Université de Paris 1 and CEPII, Paris, France
Jézabel Couppey-Soubeyran and Jérôme Héricourt

Abstract

Using a database of more than 1,300 firms from six countries in the MENA region, we study the impact of financial development on the relationship between trade credit on the one hand and bank credit access and firm-level characteristics, especially financial health, on the other hand. Trade credit use increases with the difficulty for gaining access to bank credit, and indicators of the quality of the firm’s financial structure negatively influence the use of trade credit. Additional investigations tend to suggest that increased financial development significantly reduces the substitution relationship between trade credit and bank credit and more generally decreases the influence of most firm-level determinants for trade credit usage. These results are plausibly explained by a demand-driven story: when bank credit access gets increasingly difficult, or when financial health deteriorates, the demand for trade credit increases. Similarly, when financial development increases, firms have better access to bank credit, and impact of this variable (or financial health proxies) on the demand for trade credit becomes less or not significant.

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The Review of Middle East Economics and Finance (RMEEF) addresses applied original research in the fields of economics and finance pertaining to the MENA region (Middle East and North Africa), including Turkey and Iran. The journal also publishes articles that deal with the economies of neighboring countries and/or the relationship and interactions between those economies and the MENA region.

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