We find that European SMEs significantly increased their net trade credit to sales ratio during the Great Recession. For the aggregate of SMEs, trade credit did not provide any buffer to the contraction in bank loans. In fact, through increased net trade credit, SMEs suffered a squeeze in their liquidity and this phenomenon reflects the weak bargaining power of SMEs in their trade credit relationship with larger firms. Therefore, increased net trade credit by SMEs does not reflect an efficient reallocation of credit, and it calls for policy actions. These policy actions are highly relevant, given that the liquidity squeeze had significant adverse effects on the real performance of SMEs, contributing to the recession and to the subsequent timid recovery of European economies. We explore various policies that could be implemented to relieve SMEs from the liquidity squeeze induced by the increase in their receivables.
Liquidity squeeze on SMEs during the great recession in Europe: The role of trade credit / F. Coricelli, M. Frigerio - In: Finance and Investment: The European Case / [a cura di] C. Mayer, S. Micossi, M. Onado, M. Pagano, A. Polo. - Prima edizione. - [s.l] : Oxford University Press, 2018 Jan 14. - ISBN 9780198815815. - pp. 85-94 [10.1093/oso/9780198815815.003.0005]
Liquidity squeeze on SMEs during the great recession in Europe: The role of trade credit
M. Frigerio
2018
Abstract
We find that European SMEs significantly increased their net trade credit to sales ratio during the Great Recession. For the aggregate of SMEs, trade credit did not provide any buffer to the contraction in bank loans. In fact, through increased net trade credit, SMEs suffered a squeeze in their liquidity and this phenomenon reflects the weak bargaining power of SMEs in their trade credit relationship with larger firms. Therefore, increased net trade credit by SMEs does not reflect an efficient reallocation of credit, and it calls for policy actions. These policy actions are highly relevant, given that the liquidity squeeze had significant adverse effects on the real performance of SMEs, contributing to the recession and to the subsequent timid recovery of European economies. We explore various policies that could be implemented to relieve SMEs from the liquidity squeeze induced by the increase in their receivables.File | Dimensione | Formato | |
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PolicyPaper_2016_10_13_MF.pdf
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