The trade credit channel and monetary policy transmission: Empirical evidence from U.S. panel data

•US monetary policy influences business-to-business lending known as trade credit.•Tight policy expands credit extended by public corporations.•The degree of expansion relates to the corporation’s own access to funds.•Historically, tight policy triggered credit flows from public corporations to priv...

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Bibliographic Details
Published in:The Quarterly review of economics and finance 2020-11, Vol.78, p.226-250
Main Authors: Altunok, Fatih, Mitchell, Karlyn, Pearce, Douglas K.
Format: Article
Language:English
Subjects:
Analysis
Corporate finance
Credit cycle
Credit rationing
Monetary policy
Trade credit
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Summary:•US monetary policy influences business-to-business lending known as trade credit.•Tight policy expands credit extended by public corporations.•The degree of expansion relates to the corporation’s own access to funds.•Historically, tight policy triggered credit flows from public corporations to private businesses. We investigate the US trade credit channel proposed by Meltzer (1960). We estimate reduced-form trade credit supply and demand models on quarterly firm-level data for most public corporations from 1988 to 2007. We use a novel method of distinguishing firms by access to funds using the indexes of Whited and Wu (2006) and Altman (1968). Tight monetary policy produced greater expansion of receivables than payables, expansion of receivables that varied by funds-access, and some expansion of payables by firms with poor access. Tight policy produced expansion of net trade credit by corporations which flowed to entities like private businesses, a major component of the channel.
ISSN:1062-9769
1878-4259
DOI:10.1016/j.qref.2020.03.001