Abnormal inventory and performance in manufacturing companies: evidence from the trade credit channel

Afrifa, Godfred Adjapong; Alshehabi, Ahmad; Tingbani, Ishmael; Halabi, Hussein

doi:10.1007/s11156-020-00903-y

Cited by 16 publications

(14 citation statements)

References 75 publications

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“…First, from the selling firm’s perspective, TC ensuing from our classic Murabaha leads to its value optimization as it is an integral part of its working capital policy. Our proposal is consistent with Aktas et al ( 2015 ) and Afrifa et al ( 2021 ). They find an optimum net working capital (NWC) in US corporations at a level where firms improve their operating performance and market value.…”

Section: The Way Forwardsupporting

confidence: 94%

“…TC also locks up a large amount of capital in accounts receivable, thereby deterring the selling firms’ ability to undertake value-enhancing investment projects. This may compel the firm to obtain capital at a higher cost, thereby diminishing its profitability (Kieschnick et al 2013 ; Aktas et al 2015 ; Ben-Nasr 2016 ; Afrifa et al 2021 ).…”

Section: The Institutional Frameworkmentioning

confidence: 99%

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Can trade credit rejuvenate Islamic banking?

Jatmiko

Ebrahim

Iqbal

et al. 2022

Rev Quant Finan Acc

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This study proposes a renewal of the contemporary Islamic banking Murabaha financing model as it aggravates financial fragility with waning economic efficiency. We adapt the working capital framework of successful US companies like Amazon and Walmart and model an innovative Murabaha facility as trade credit within the real sector of the economy. We then test its robustness in a range of simulation tests. Our approach is novel and stands in contrast to the familiar financial sector fixed-income facilities, characteristic of Western economies, stealthily mimicked as mark-up (interest rate based) Murabaha by Islamic banks. We argue that this is neither appropriate nor effective for Islamic economies, making them fragile under monetary pressures in crises like the current coronavirus and energy ones. Our simulation results indicate that the trade credit Murabaha not only transforms debt into a risk-sharing one but also offers more competitive financing rates, reduces systemic risk, and improves financial stability. Furthermore, our results imply that the trade credit Murabaha can increase the efficiency of Islamic financial systems and make them more resilient to shocks. Consequently, this paper discusses the integration of our novel Murabaha within a recreated architecture of Universal Banking. As an implication, this should promote business activity and contribute to global growth. Finally, we recommend how to deploy our novel Murabaha based on trade credit (as opposed to the currently deployed fixed-income-mimicked Murabaha) to alleviate twin agency debt costs (risk shifting, underinvestment) and solve the ownership transfer problem of modern Islamic banking.

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Section: The Way Forwardsupporting

confidence: 94%

Section: The Institutional Frameworkmentioning

confidence: 99%

Can trade credit rejuvenate Islamic banking?

Jatmiko

Ebrahim

Iqbal

et al. 2022

Rev Quant Finan Acc

View full text Add to dashboard Cite

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“…Box et al, 2018) attempt to decompose the APJBA 14,1 impact of trade credit on profitability by delving into constituent components of operational performance metrics. Afrifa et al (2021) demonstrate that payables and receivables may be effectively used to manage firms' inventory levels thereby allowing companies to optimize their balance sheets, thus improving overall operational performance.…”

Section: The Cost Effectmentioning

confidence: 99%

Do generous trade credit terms provide a competitive edge?

Osiichuk

Wnuczak

2021

APJBA

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PurposeThe authors document a persistent negative link between contemporaneous trade credit provision and subsequent firm-level operating performance.Design/methodology/approachTextual analysis of firms' profile descriptions is used to study the role of market segmentation and product differentiation in intermediating the nexus between trade credit and corporate performance. The paper relies on dynamic panel regression modeling to investigate the postulated empirical relationships. This approach allows to address endogeneity issues and to test a number of different model specifications.FindingsDespite fueling short-term sales growth, the more generous trade credit terms are found to be associated with lower post hoc margins and declining overall business profitability. The market share is not affected by firms' proclivity to provide trade credit suggesting that the latter may not be effectively used as a long-term growth enhancement strategy. Firms' similarity to their competitors is found to play a salient role in altering the magnitude of the discovered negative relationship.Originality/valueThe authors find that the intensity of intra-industry competition measured by firms' similarity to their competitors magnifies the discovered negative trade credit-performance nexus. Therefore, generous trade credit may play a more important role in solidifying client–supplier relationships on the more segmented markets with a higher degree of product differentiation.

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“…The platform provides effective and efficient control of inventory of manufacturing units by using Malinvent software (Owoeye et al, 2014). IA technology is more useful for measuring job productivity, a reduction in the counting process and record process, above all, a significant contribution to improved quality and rapid supply chain of accuracy concerning products (Afrifa et al, 2020).…”

Section: Inventory Automation (Ia)mentioning

confidence: 99%

“…, 2014). IA technology is more useful for measuring job productivity, a reduction in the counting process and record process, above all, a significant contribution to improved quality and rapid supply chain of accuracy concerning products (Afrifa et al. , 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

Management of inventory for firms’ efficiency – a study on steel manufacturing industry

Panigrahi

Mishra²,

Samantaray

et al. 2022

JAMR

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PurposeThe purchase is becoming a more difficult cum tactical decision that affects the cost factor, quality factor, time factor and responsive factor of the buy and maintains them. The purpose of this study is to investigate the effect of inventory management (IM) practices on operational efficiencies (OEs) in Indian steel manufacturing firms.Design/methodology/approachThe study is based on a quantitative research design that has collected information from 321 key officials of Indian steel manufacturing firms. The analyses are carried out with the use of statistical techniques such as confirmatory factor analysis and structural equation modeling (SEM).FindingsThe paper finds that inventory management (IE) has a considerable impact on the OE of steel manufacturing firms in India. The manufacturing industry must highlight the significance of inventory management practice (IMP) for enhancing firm efficiencies in a volatile environment with the help of management teams. Understanding the impact of IE practices on firms’ OE would be helpful for company shareholders and investors.Practical implicationsThe paper suggests the manufacturing industry to emphasize the role of inventory management practices to have better productivity of the firm. This research focuses on the relationship between IMP and OE.Social implicationsEffective and efficient use of inventory will be helpful in reducing the overall cost of production and reduced costs to customers.Originality/valueCompanies require resources to attain a long-term competitive edge. Also, as a consequence, the research is compatible with resource-based view (RBV) theory.

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Abnormal inventory and performance in manufacturing companies: evidence from the trade credit channel

Cited by 16 publications

References 75 publications

Can trade credit rejuvenate Islamic banking?

Can trade credit rejuvenate Islamic banking?

Do generous trade credit terms provide a competitive edge?

Management of inventory for firms’ efficiency – a study on steel manufacturing industry

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