Trade credit and bank relationships: evidence from pre-World War I Belgium

We investigate the determinants of trade credit granted by suppliers in a historical environment which was characterized by high-information asymmetries and strong banks, focusing on the role of bank–firm relationships. Our results, which are based on a unique sample of 535 firm-year observations for 125 listed Belgian firms in four dominant industries in the period 1905 to 1909, are generally consistent with the financing role of trade credit. They suggest that trade credit was a tool for channelling funds from firms with close bank ties to other firms, which is consistent with findings for contemporary developing countries.