Banking crises and corporate trade credit: The role of creditor protection

Abstract

This study examines the impact of banking crises on corporate trade credit and the moderating role of creditor protection, using a large sample of firms from 45 countries. The findings suggest that banking crises increase firms’ reliance on trade credit due to reduced lines of credit. Moreover, strong creditor protection can weaken the adverse effect of banking crises on firms’ credit access. Our results are robust to a series of sensitivity tests. Finally, this study generates important policy implications. Policymakers should strengthen creditor rights protection to mitigate the credit contraction due to banking crises.