Interenterprise Credit and Adjustment during Financial Crises: The Role of Firm Size

Small and medium-sized enterprises (SMEs) suffered a sharp contractionin their borrowing from banks during the Great Recession. Analyzing alarge firm-level database for European countries, the paper shows that tradecredit amplified the liquidity squeeze on SMEs, with adverse effects ontheir real activity. SMEs sharply increased their net trade credit and thustransferred financial resources to larger firms. Given the large weight ofSMEs in the economy of European countries, the liquidity squeeze of SMEslikely contributed to the depth of the output fall and the slow recovery inEurope during the Great Recession.