Downstream Value from Upstream Finance
Matthew D. Hill
University of Southern Mississippi
G. W. Kelly
University of Southern Mississippi; Mississippi State University - Department of Finance and Economics
G. Brandon Lockhart
Clemson University - Department of Finance
October 31, 2012
Financial Review, Forthcoming
We examine market value implications of managing liquidity via supplier financing. Results suggest a direct link between shareholder wealth and use of trade credit, and the relation exhibits significant cross-sectional variation. In particular, the market value of trade credit varies with the liquidity of goods sold and competition in product markets. Evidence also indicates the value-supplier financing association strengthens with financial constraint, which supports the financing motive for trade credit. Further findings are consistent with the transaction cost motive. Overall, we conclude that shareholders value the strategic benefits associated with supplier financing and that downstream firms’ characteristics influence this value.
Number of Pages in PDF File: 37
Keywords: trade credit, working capital, corporate liquidity
JEL Classification: G30, G32
Date posted: October 3, 2011 ; Last revised: July 31, 2013
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