Trade Credit And Size Of Firms: Theories And Evidence

The relationship between the size of a firm and the size of the trade credit it offers is very different in the developed countries and in the developing countries. Despite the wide gap, there're still very few studies in this area.After a review on the micro-explanations of trade credit, this paper try to find the reason of the arising of the huge difference by using the evidence found by the recent empirical researches and this paper itself. I find that the relationship between the size of firms, the network of relationship the firms belonged to and the trade credit the firms offered is the main reason of that difference. Firms with different size belong to different networks of relationship, and the effect of network of relationship on the size of trade credit in developed countries and developing countries is different, which responsible for the difference between the relationship of the size of a firm and the size of the trade credit it offers in the developed countries and the developing countries. That shows different institution arrangements may lead to different characteristics of operations in different economies, even with similar purposes. In addition, my empirical researches also confirm that there is a negative correlation between the size of the trade credit and the area's financial develop level, which shows a special importance of trade credit in the less-financial-developed areas, on the other hand, it also shows that deepen financial reform and improve the financial development is the only way to solve the problems of triangle-credit which have interrupted Chinese enterprises for a long times.