| In the first chapter of the dissertation, I study the decision of small businesses to finance purchases with trade credit and the effect this has on the level of institutional loans. In my view firms meet their financing demand by borrowing both institutional loans and trade credit which are not perfect substitutes. I hypothesize that suppliers, unlike conventional lenders, do not play a passive financing role in offering trade credit, but instead try to increase entrepreneurial efficiency, which influences buyer's debt capacities. I offer a theoretical model, the implications of which hinge on whether trade credit and loans are complements or substitutes. I test the predictions of the model to determine the relationship between supplier financing and institutional borrowing. My empirical findings reveal that trade credit and conventional loans are not substitutes, and validate the conjecture that synergies arise from the combination of seller and institutional financing.; Correcting for endogeneity and simultaneity is central to my econometric specification. My econometric approach allows for sorting and selectivity to occur among firms that use trade credit. When I control for observable and unobservable firm characteristics, I establish that more trade credit is associated with higher levels of standard loans.; In the second chapter, I analyze the role of supplier and institutional financing in the firm's capital investment decision. There are three main questions I address there. Firstly, I seek to establish whether firms intentionally borrow from suppliers by delaying immediate cash payments in order to increase their overall investment levels. While suppliers do not loan directly to their clients they provide financing in the form of trade credit which indirectly allows firms to meet their desired investment targets. Secondly, I investigate how investment depends on the level of institutional financing; and finally, I analyze the intertemporal links among investment, institutional financing and trade credit.; The evidence I present confirms that investment, trade credit and institutional borrowings are jointly determined. Higher amounts of loans and trade credit correspond to higher investment levels indicating that firms indeed postpone cash payments to use available funds for investment purposes. Evidence on the complementarity between trade credit and institutional financing is also presented. I find little empirical support of the signaling hypothesis according to which the use of trade credit conveys positive information of borrowers' credit worthiness. |
