Do Firms Use the Trade Credit Channel to Manage Growth?

12 Pages Posted: 12 Sep 2011 Last revised: 4 Nov 2014

See all articles by Annalisa Ferrando

Annalisa Ferrando

European Central Bank (ECB)

Klaas Mulier

Ghent University - Faculty of Economics and Business Administration

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Date Written: June 20, 2011

Abstract

While many theories of accounts payable and receivable are related to firm performance, there has not been a direct test whether firms actively use them to manage their growth. We argue that it is not just the accounts payable but also the accounts receivable that matter. While the former help to alleviate imperfections in the financial market, the latter do so in the product market. Using over 2.5 million observations for 600.000 firms in 8 euro area countries in the period 1993–2009, we show that firms use the trade credit channel to manage growth. In countries where the trade credit channel is more present, the marginal impact is lower, but the total impact is still higher. Further, firms that are more vulnerable to financial market imperfections, rely more on the trade credit channel to manage growth. Finally, we show that also the overall conditions of the financial market matter for the importance of the trade credit channel for growth.

Keywords: firm performance, trade credit payable, trade credit receivable

JEL Classification: C23, E44, G32, L25

Suggested Citation

Ferrando, Annalisa and Mulier, Klaas, Do Firms Use the Trade Credit Channel to Manage Growth? (June 20, 2011). Journal of Banking and Finance, Vol. 37, No. 8, 2013. Available at SSRN: https://ssrn.com/abstract=1926254 or http://dx.doi.org/10.2139/ssrn.1926254

Annalisa Ferrando (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Klaas Mulier

Ghent University - Faculty of Economics and Business Administration ( email )

Ghent, B-9000
Belgium

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