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1.
Introduction
Trade credit is a legally binding agreement between two business partners in which the buyer can purchase goods or services on account and pay the supplier at a later date, i.e. a short-term loan to a buyer provided by a supplier (Cuñat and Garcia-Appendini, 2012). The importance of trade credit can be illustrated by Kohler et al. 's (2000) finding that 55 per cent of the total short-term credit received by UK firms during the 1983-1995 period was in the form of trade credit. The present study focuses on the buyer side (i.e. the demand side) of trade credit. Trade credit appears as accounts payable on the buying firm's balance sheet.
Because of the significance of trade credit agreements, research into the determinants of trade credit has increased in recent years (Seifert et al. , 2013). However, research into the relationship between trade credit and determinants in the form of other financing sources is more limited (Ghosh, 2015). Several researchers have attempted to identify determinants of trade credit demand using a financial approach (Schwartz, 1974; Biais and Gollier, 1997; Atanasova, 2007; Huang et al. , 2011). Among the determinants identified in previous studies are internal financing (i.e. profit) and external financing instruments (mainly bank credit). However, short- and long-term debt are rarely distinguished. This study examines the nature of the relationship between trade credit and short- and long-term debt and profitability.
The present study also focuses on small- and medium-sized enterprises (SMEs). A common challenge for SMEs, especially small and young ones, is access to external financing in terms of bank loans (Peel et al. , 2000; Wilson and Summers, 2002; Danielson and Scott, 2004). This challenge has been explained by the fact that SMEs are often linked to financial markets characterized by information asymmetry and agency conflicts, high verification costs, adverse selection and moral hazards (Carpenter and Petersen, 2002; Berger and Udell, 2006). To overcome problems related to credit rationing, trade credit is regarded as an important short-term financing instrument for SMEs (Cassia and Vismara, 2009; Gama et al. , 2010; Garcia-Teruel and Martinez-Solano, 2010).
The aim of the present study is to empirically investigate the aforementioned firm-level determinants of trade credit among SMEs in various industries. In line with previous studies...