Impact of Monetary Policy on Trade Credit and Bank Credit in an Emerging Market Economies: Empirical Evidence in the Indonesia Stock Exchange

Abstract

The global financial crisis of trigger Bank Indonesia to implement a monetary contraction policy by increasing the central bank's benchmark interest rate. This increase in interest rates will increase lending rates which burden creditors. Therefore creditors will shift loan from bank credit to trade credit. This study aims to analyze the effect of monetary policy on corporate credit in the form of bank credit and trade credit as an important source of financing for company profitability by using the simultaneous panel analysis method. The data used are annual data from 2015-2018 with a total cross-section of 109 companies listed on the Indonesia Stock Exchange. The results showed that the increase in interest rates as an indicator of monetary policy could increase lending on trade credit and reduce demand for lending on bank credit. This shows that the type of funding from trade credit has an important role as an alternative source of external financing when the Bank Indonesia implements a monetary contraction policy. The negative relationship between trade credit and bank credit proves that trade credit can be used instead of bank credit.