Financial crisis, global liquidity and trade credit channel: Evidence from Türkiye

Abstract

This paper examines the role of trade credit in the transmission of global liquidity conditions. Specifically, we investigate whether trade credit complements or substitutes the decline in bank lending activity as global liquidity tightens. Using a detailed bank and firm-level dataset for Turkish firms, we find that firms which are more bank-finance constrained have less access to trade credit as global liquidity tightens. The rate of trade credit tightening is amplified during crisis periods. While bank-finance constrained firms receive significantly less trade credit from suppliers, they reduce the amount of trade credit that they extend to customers even more, implying that tightening trade credit conditions propagate further through supply chains. In addition, trade credit conditions deteriorate more for small firms and for cash-poor firms in times of crisis.