THE EFFECT OF FINANCIAL CRISIS ON BEHAVIOUR OF TRADE CREDIT: A STUDY OF THE UK PRIVATE FIRMS

Abstract

The purpose of this paper is to investigate the impact of the recent credit supply shocks
on the behaviour of trade credit (accounts payable) and trade debtor (accounts
receivable) of UK private firms.
Design/methodology/approach – The fixed effect model is used in this study to
investigate these issues.
The results indicate that private firm's short term bank leverage is adversely affected by
the recent credit supply shock. In addition we have found that during the crises period
UK private firms do not increase trade credit. The results further highlight that these
firms also reduced the extension of trade credit to their customer. In addition, the trade
credit behaviour of both manufacturing and service sector firms is adversely affected by
exogenous credit contraction.
It is the first study that investigates the behaviour of trade credit, trade debtor of the
UK private firms during the recent crisis period.