Trade credit and a financial crisis –Evidence from the Nordic countries

Abstract

PURPOSE OF THE STUDY The main purpose of this thesis is to broaden the empirical research literature of trade credit use during exceptional market conditions. The recent financial crisis 2008-09 provides a unique platform for this type of a study. The first objective of this thesis is to analyze whether the use of trade credit changed materially among Nordic firms during the crisis period. Second purpose is to analyze the impact of the estimated firm-level vulnerability to the crisis on the use of trade credit during the period. Thirdly this thesis studies the potential cross-country differences between Nordic firms.

DATA The empirical analysis is based on panel data of listed firms in Finland, Sweden, Norway and Denmark. The data sample contains firm level observation from 1995 to 2010 and it is retrieved from Worldscope database available in Thomson One Banker data service. Years 2008 and 2009 are treated as crisis years, 2010 as a post-crisis year and the earlier years provide comparison to the aforementioned years.

RESULTS The results indicate that the use of trade credit was more likely to decrease than increase during the crisis. The relative decrease in accounts receivables seems to be stronger than the relative decrease in accounts payables among the sample firms. The cross-country comparison suggests that in Finland the decline was more pronounced during 2008-09 and in the other countries in 2009-10. The tests using several pre-crisis indicators of financial vulnerability are unable to reliably explain firm level differences in trade credit use during the crisis period.