Did the 1995 Mexican Crisis Affect the Financial Constraints of Listed Firms and Their Role as Providers of Credit?

The credit crunch that the Mexican economy experienced after the currency crisis of December 1994 has been widely documented. At the same time it was surprising how fast this economy recovered and achieved high growth rates achieved from 1996 to 2000. The big question is then: How was this growth financed? and Who took the place of domestic banks? This paper contributes to the understanding of these questions by focusing in two more specific questions: how the financing sources of listed companies were affected after the crisis? and how important were these companies as credit providers through trade credit? The data base comes from Mexican Stock Market and consists of an unbalanced panel of 376 public firms, of which only 64 are present for the whole sample.

The main results of the paper indicate that not all the firms were affected by the credit crunch, like the export oriented, the larger firms and in general firms with access to foreign markets. Between the affected firms, there seems to be a move towards suppliers’ credit, although it was not enough to cover the reduction in other financing sources. It was found that smaller firms extended more credit both in terms of their sales and of their capital than larger ones. Also exporting firms gave more credit than non-exporting ones. There is also evidence suggesting that only exporting, medium size and larger firms increased the extended trade credit after the crisis.