Bank Credit and Trade Credit during Crisis

What the paper says

Using the logit model, this paper investigates the relationship between bank credit and trade credit.In particular the impacts of trade credit factors on obtaining bank loans are studied in depth with comparing the global financial crisis and the Covid crisis (as the two most serious crises since the 21 st century).Considering the importance of bank credit and trade credit for start-up firms, this paper uses the financial data of Portuguese manufacturing firms in their founding year during the crisis and pre-crisis periods.The findings generally support a substitute relationship between bank credit and trade credit for start-up firms.A special finding is that during the Covid crisis period trade credit factors cannot influence access to bank loans for start-up firms compared to during the global financial crisis period, while a positive effect of profitability on obtaining bank loans is highlighted during the Covid crisis period.One reason may be the effect of the European sovereign debt crisis making banks tighten granting loans in hard economic situations since then, which increases the importance of profitability.Another reason may be that the Covid pandemic broke out and diffused worldwide in a quite short time, which swiftly caused lock-down policy and then dramatic economic downturn in 2020 with the feature of being unable to be forecasted previously.The global financial crisis started in September 2008, which immediately triggered a pessimistic opinion about economic expectation in the following year; this means that banks had time to adjust their policy in granting loans to suit the upcoming market situation during this traditional crisis.Therefore, the findings confirm a failure of trade credit factors to influence obtaining bank credit for start-up firms during the Covid crisis that is unpredictable and untraditional.