Trade Credit and Firm Performance
Posted: 15 Aug 2015
Date Written: August 13, 2015
Abstract
Trade credit is reciprocal in that firms grant credit to customers and also accept credit from suppliers, but the relationship between the joint and net effects of trade receivables and trade payables on performance are scant in the existing literature. Panel data regression analysis is used in the estimation of functions relating the effects of trade credit channel and net trade credit on performance. The results of a panel of 1,708 firms over the period 2003-2012 show a positive relation between net trade credit and firm performance; and a positive association between trade credit channel and performance. The results were further strengthened by interacting size and cash flow with trade credit. Overall, the findings provide evidence that the performance of net trade credit and trade credit channel are higher for larger and/or less financially constraint firms.
Keywords: Net trade credit, Trade credit channel, Trade receivables, Trade payables, Performance
JEL Classification: L26, G30, G31
Suggested Citation: Suggested Citation