Short-term financing sources in Africa: Substitutes or complements?

TY - JOUR

T1 - Short-term financing sources in Africa: Substitutes or complements?

AU - Machokoto, Michael

AU - Mahonye, Nyasha

AU - Makate, Marshall

PY - 2021/11/29

Y1 - 2021/11/29

N2 - Using panel vector autocorrelation models (Panel VaR), we examine the dynamic interrelationships between short-term financing sources for a large sample of 8,464 firm-year observations from seven understudied developing economies over the period 1991-2015. On average, we find that short-term debt and trade credit are complements, while cash holdings are substitutes for short-term debt and trade credit. However, our further analyses show that the interrelationships between short-term financing sources are strong and significant before the financial crisis but diminish thereafter with contractions in credit supply. These changes highlight the impact of credit supply shocks on short-term financing policies of firms domiciled in less-developed capital markets. As firms in Africa, an exemplary less-developed capital market context, rely heavily on short-term financing sources, the dynamic interrelationships we document have important implications that are of interest to academics, practitioners, and policymakers alike.

AB - Using panel vector autocorrelation models (Panel VaR), we examine the dynamic interrelationships between short-term financing sources for a large sample of 8,464 firm-year observations from seven understudied developing economies over the period 1991-2015. On average, we find that short-term debt and trade credit are complements, while cash holdings are substitutes for short-term debt and trade credit. However, our further analyses show that the interrelationships between short-term financing sources are strong and significant before the financial crisis but diminish thereafter with contractions in credit supply. These changes highlight the impact of credit supply shocks on short-term financing policies of firms domiciled in less-developed capital markets. As firms in Africa, an exemplary less-developed capital market context, rely heavily on short-term financing sources, the dynamic interrelationships we document have important implications that are of interest to academics, practitioners, and policymakers alike.

KW - Short-term finance

KW - Africa

KW - Trade credit

KW - Short-term debt

KW - Financial crisis

KW - Emerging markets

U2 - 10.1016/j.ribaf.2021.101572

DO - 10.1016/j.ribaf.2021.101572

M3 - Article

SN - 0275-5319

SP - 1

EP - 18

JO - Research in International Business and Finance

JF - Research in International Business and Finance

ER -