Trade Credit Financing: Substitution and Matching Effect for Italian SMEs

This study investigates the relevance of financial motivation in the use of trade credit for Italian SMEs in the 2005-2012 period. Using GMM models, the study aims to test whether accounts payable follow a model of partial adjustment and whether firms that grant trade credit to their customers demand delayed accounts payable from their suppliers. It also aims to find empirical evidence that supports the financial function of trade credit. The results support the hypothesis of the existence of a model of partial adjustment, since the accounts payable terms of the previous year affect the accounts payableterms of the following year. The results also show howfirms that grant extended payment terms to their customers demand delayed accounts payable from their suppliers. The empirical evidence reveals the existence of a substitution function between accounts payable and debts to banks and suggests that SMEs increase their accounts payable when short- or medium-long-term bank credit is less available.