Substitutes or complements? Use of trade credit and bank credit by family SMEs

Abstract

This research examines the intricate relationship between trade and bank credit, with a specific focus on family and nonfamily small and medium-sized enterprises (SMEs). Our analysis of a sample of 3690 US SMEs reveals a distinctive pattern: Trade credit and bank credit act as substitutes for each other for family firms, but they serve as complements to each other for nonfamily firms. Furthermore, our findings highlight that this distinctive pattern is particularly pronounced in the contexts of low-performing SMEs and smaller SMEs. The results provide a nuanced understanding of the relationship between trade and bank credit and underscore the importance of considering the impact of a governance structure on an SME's financing behaviors.