The Use of Supplier Financing and Shareholder Wealth

33 Pages Posted: 3 Oct 2011 Last revised: 13 Feb 2012

See all articles by G. W. Kelly

G. W. Kelly

University of Southern Mississippi; Mississippi State University - Department of Finance and Economics

Matthew D. Hill

Arkansas State University

G. Brandon Lockhart

Clemson University - Department of Finance

Date Written: September 16, 2011

Abstract

We examine market value implications of managing liquidity via supplier financing. Results suggest a direct relation between shareholder wealth and use of trade credit. Further, the relation exhibits significant cross-sectional variation. In particular, industry affiliation influences the market value of trade credit, with respect to liquidity of goods sold and product market competition. Results also suggest the excess returns-supplier financing association strengthens with financial constraint, which supports the financing motive for trade credit. Findings also provide some support for the transactions cost motive. Overall, we conclude that shareholders acknowledge the strategic benefits associated with access to and use of supplier financing and that downstream firms’ characteristics influence from the value relevance of the strategic use of trade credit.

Keywords: Trade Credit, Accounts Payable, Working Capital, Shareholder Wealth

JEL Classification: G30, G39

Suggested Citation

Kelly, Gary Wayne and Hill, Matthew D. and Lockhart, G. Brandon, The Use of Supplier Financing and Shareholder Wealth (September 16, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1928935 or http://dx.doi.org/10.2139/ssrn.1928935

Gary Wayne Kelly (Contact Author)

University of Southern Mississippi ( email )

118 College Drive
#5076
Hattiesburg, MS 39406
United States
601 266 4959 (Phone)
601 266 6110 (Fax)

Mississippi State University - Department of Finance and Economics ( email )

Mississippi State, MS 39762
United States

Matthew D. Hill

Arkansas State University ( email )

2713 Pawnee
P.O. Box 1750
Jonesboro, AR 72467-115
United States

G. Brandon Lockhart

Clemson University - Department of Finance ( email )

Clemson, SC 29634
United States

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