Chapter 8: Small business demand for trade credit, credit rationing and the late payment of commercial debt: an empirical study*
Page 181 8. Small business demand for trade credit, credit rationing and the late payment of commercial debt: an empirical study* Nicholas Wilson, Carole Singleton and Barbara Summers Introduction In recent years a considerable amount of research has been devoted to understanding the functioning of credit markets, credit market imperfections, the phenomenon of credit rationing and the role of asymmetric information (Stiglitz and Weiss, 1981; de Meza and Webb, 1987). One strand of this debate has focused on the impact of finance (debt)gaps, under asymmetric information, on the dynamics of small firm survival and growth (Black, de Meza and Jeffreys, 1996; Cressy, 1996). The provision of debt to small firms is widely recognised as a key factor in enabling (potentially) successful small firms to startup and grow and inter alia in improving the dynamic efficiency of the economy. Indeed concerns about a ‘financegap’ and the terms on which debt finance is available to smaller companies have led successive policy makers in the UK and abroad to launch many initiatives in an attempt to alleviate the perceived problem. Yet survey evidence suggests that small companies are often undercapitalised and consequently highly reliant on shortterm finance (for example, bank overdraft), a factor that has been widely cited as a main contributor to constraining growth, cashflow problems and premature business failure (see Bickers, 1994). Trade credit, sellers accepting payment after the delivery of goods and services, plays an important role as a component of net working capital...
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