Do Firms Use the Trade Credit Channel to Manage Growth?

Ferrando, Annalisa; Mulier, Klaas

doi:10.2139/ssrn.2187266

Cited by 15 publications

(33 citation statements)

References 17 publications

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“…On the one hand, Choi and Kim (2005) document that both accounts payable and receivable increase during macro‐financial shock periods. Ferrando and Mulier (2013) also find that trade credit can be served as a buffer during the recent 2007–2009 financial crisis in the euro area. On the other hand, Love et al.…”

Section: Resultsmentioning

confidence: 96%

“…On the one hand, Choi and Kim (2005) document that both accounts payable and receivable increase during macro-financial shock periods. Ferrando and Mulier (2013) also find that trade credit can be served as a buffer during the recent 2007-2009 financial crisis in the euro area. On the other hand, Love et al (2007) and Garcia-Appendini and Montoriol-Garriga (2013) show a reduction in trade credit provision during financial crises, such that firms with more access to the credit market would have lower liquidity available to be distributed to their customers during the crises.…”

Section: Subperiod Analysismentioning

confidence: 86%

“…From the perspective of customer firms, trade credit reduces transaction costs through separating payments from delivery which, in turn, alleviates the need for holding inventory (Emery, 1987) and also signals product quality by allowing customers to use the products before payment (Deloof & Jegers, 1996; Lee & Stowe, 1993). In addition, trade credit is a useful source of liquidity finance offered by suppliers for firms facing financial distress risk and/or experiencing liquidity shock or fast growth (Cuñat, 2007; Ferrando & Mulier, 2013; Love & Zaidi, 2010). From the perspective of supplier firms, suppliers use trade credit to signal the quality of their investment projects to external investors (Aktas et al., 2012).…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…A notion put forward by Petersen and Rajan (1997) is that when access to other sources of funds lessens, trade credit is viewed as a substitute source of financing and suppliers become lenders of last resort for financially constrained customer firms. Similarly, some studies document that larger trade credit is demanded by financially constrained firms (Biais & Gollier, 1997; Burkart & Ellingsen, 2004) so that firms with limited access to external debt financing and those with fast growth tend to rely heavily on trade credit (Cuñat, 2007; Ferrando & Mulier, 2013; Love & Zaidi, 2010). Put differently, trade credit can be viewed as an alternative source of financing that eases financially constrained firms’ financial burden over the short run, suggesting that the demand for trade credit is expected to be stronger for financially constrained firms compared with unconstrained firms.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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Managerial ability and trade credit

Khoo

Cheung

2021

The Financial Review

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We examine whether and how managerial ability affects trade credit (accounts payable, in particular). The empirical analyses show that firms with higher managerial ability are associated with an increase in trade credit received. We also find that the impact of managerial ability on accounts payable is stronger for firms having poorer credit quality or more binding financial constraints. Our findings are robust to alternative measures of key variables, financial crises, product characteristics, and endogeneity concerns.

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Section: Resultsmentioning

confidence: 96%

Section: Subperiod Analysismentioning

confidence: 86%

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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Managerial ability and trade credit

Khoo

Cheung

2021

The Financial Review

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“…Casey and O'Toole 2014;Garcia-Appendini and Montoriol-Garriga 2013), our study documents that this alternative financing instrument can alleviate SME business distress, especially for those facing liquidity constraints, although the length of credit period offsets the effect. In addition, this paper also deepens our understanding on the benefits of using trade credit on growth management (Ferrando and Mulier 2013) and mitigating financial constraints (Agostino and Trivieri 2019). Moreover, we show that the longer the average collection period and credit period, the weaker the beneficial effects of trade credit on improving profitability and reducing operational distress.…”

Section: : Introductionmentioning

confidence: 52%

The financial and operational impacts of European SMEs’ use of trade credit as a substitute for bank credit

Wang

Han

Huang

et al. 2021

The European Journal of Finance

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We study the impacts of the use of trade credit on SME financial performance and operational distress in a sample of 74,036 SMEs across 19 EU countries between 2006 to 2015. Under the premise that trade credit acts as a substitute for bank credit, our results show that supplying trade credit improves profitability, but we show little evidence that such an investment is more profitable for bank credit richer SMEs, although such firms did redistribute more bank fund through trade credit to their customers. For receivers, we show that the use of trade credit finance alleviates operational distress, especially for those SMEs facing liquidity constraints, such as those which have less access to bank credit or under credit tightened periods. This distress reduction effect is also reflected in their profitability indicators. However, the longer the average collection period and credit period, the less effective the trade credit effects respectively on improving SME profitability and reducing operational distress.

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Trade credit and firm investments: empirical evidence from Italian cooperative banks

Filomeni

Modina

Tabacco

2022

Rev Quant Finan Acc

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By exploiting a unique and proprietary panel dataset comprising 6480 Italian SMEs having a relationship with 99 cooperative banks over the period 2008–2014, we investigate the influence of the trade credit channel on firm investment decisions in the Italian market, distinguished by a considerable presence of relationship cooperative banks’ branches with a heterogeneous geographical distribution. Firstly, our findings confirm a significant influence of the trade credit channel on firm investment decisions. Secondly, we document that SMEs located in those Italian provinces with an abundance of cooperative banks’ branches rely less on trade credit to finance investments. Lastly, we show that longer firm-bank relationships decrease firm dependence on trade credit to boost investments. Our study is of particular relevance because it strengthens the effectiveness of the trade credit channel for SMEs in spurring corporate investments. Indeed, fostering a deep understanding of the real effects of firm financing sources is paramount to encourage investment by SMEs and to allow them to preserve their positioning in the market. Moreover, we exploit the Italian market, well-suited to perform such an analysis, since it is characterized by more inter-personal financing relationships as compared to other countries.

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Do Firms Use the Trade Credit Channel to Manage Growth?

Cited by 15 publications

References 17 publications

Managerial ability and trade credit

Managerial ability and trade credit

The financial and operational impacts of European SMEs’ use of trade credit as a substitute for bank credit

Trade credit and firm investments: empirical evidence from Italian cooperative banks

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