Downstream Value from Upstream Finance

Financial Review, Forthcoming

37 Pages Posted: 3 Oct 2011 Last revised: 31 Jul 2013

Matthew D. Hill

Arkansas State University

G. W. Kelly

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

G. Brandon Lockhart

Clemson University - Department of Finance

Date Written: October 31, 2012

Abstract

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.

Keywords: trade credit, working capital, corporate liquidity

JEL Classification: G30, G32

Suggested Citation

Hill, Matthew D. and Kelly, G. W. and Lockhart, G. Brandon, Downstream Value from Upstream Finance (October 31, 2012). Financial Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1937654 or http://dx.doi.org/10.2139/ssrn.1937654

Matthew D. Hill (Contact Author)

Arkansas State University ( email )

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

Gary Wayne Kelly

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

G. Brandon Lockhart

Clemson University - Department of Finance ( email )

Clemson, SC 29634
United States

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