Downstream Value of Upstream Finance

27 Pages Posted: 11 Oct 2013

See all articles by Matthew D. Hill

Matthew D. Hill

Arkansas State University

G. Wayne Kelly

University of Southern Mississippi

G. Brandon Lockhart

Clemson University - Department of Finance

Date Written: November 2013

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. Wayne and Lockhart, G. Brandon, Downstream Value of Upstream Finance (November 2013). Financial Review, Vol. 48, Issue 4, pp. 697-723, 2013, Available at SSRN: https://ssrn.com/abstract=2338855 or http://dx.doi.org/10.1111/fire.12021

Matthew D. Hill (Contact Author)

Arkansas State University ( email )

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

G. Wayne Kelly

University of Southern Mississippi

No Address Available

G. Brandon Lockhart

Clemson University - Department of Finance ( email )

Clemson, SC 29634
United States

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