@unpublished {65956,
	title = {Trade Credit, Bank Loans, and Monitoring: Evidence from Japan},
	year = {2005},
	note = {Also John M. Olin Center for Law, Economics, and Business, Working Paper no. 527.Download PDF},
	month = {Oct 1, 2005},
	abstract = {Firms in modern developed economies can choose to borrow from
banks or from trade partners. Using first-difference and difference-in-differences
regressions on Japanese manufacturing data, we explore the way they make that choice.
Whether small or large, they do borrow from their trade partners heavily, and apparently
at implicit rates that track the explicit rates banks would charge them. Nonetheless, they
do not treat bank loans and trade credit interchangeably. Disproportionately, they borrow
from banks when they anticipate needing money for relatively long periods, and turn to
trade partners when they face short-term exigencies they did not expect.
This contrast in the term structures of bank loans and trade credit follows from
the fundamentally different way bankers and trade partners reduce the default risks they
face. Because bankers seldom know their borrowers{\textquoteright} industries first-hand, they rely on
guarantees and security interests. Because trade partners know those industries well, they
instead monitor their borrowers closely. Because the costs to creating security interests
are heavily front-loaded, bankers focus on long-term debt. Because the costs of
monitoring debtors are on-going, trade creditors do not. Despite the enormous theoretical
literature on bank monitoring, banks apparently monitor very little.},
	author = {Ramseyer, J. Mark and Miwa, Yoshiro}
}
