The Information Content of Trade Credit
Skema Business School
Eric De Bodt
Université Lille Nord de France - SKEMA Business School
Université de Lille Nord de France – European Center for Corporate Control Studies
Université de Lille Nord de France – European Center for Corporate
December 3, 2011
Journal of Banking and Finance, Forthcoming
During 1992–2007, suppliers financed almost 10% of the total assets of U.S. listed firms. This intensive usage of trade credit is puzzling in the light of its high (implicit) costs. By arguing that trade credit use provides valuable information to outside investors, we first derive a theoretical model that predicts a positive correlation between trade credit use and the quality of the firm’s investments. Then, using several proxies for firm’s investment quality (Z-score, return on assets, and long-run abnormal returns), we show that this prediction receives strong support from a large sample of U.S. firms.
Number of Pages in PDF File: 42
Keywords: Trade credit, Signaling, Z-score, Long-run abnormal returns
JEL Classification: G32working papers series
Date posted: March 15, 2010 ; Last revised: December 22, 2011
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