Operating Performance and Aggressive Trade Credit Policies
51 Pages Posted: 14 Apr 2016 Last revised: 7 Jan 2018
Date Written: January 5, 2018
We examine the operating performance improvements associated with the extension of trade credit. Our results suggest a positive and significant relation between future profitability and contemporaneous trade credit provision. Further findings indicate significantly higher margins, revenues and market shares for firms that extend more trade credit than industry competitors with similar characteristics, operational necessities and financial distress levels. These inferences are robust to several econometric concerns such as the joint determination of trade credit extension and firm performance. Overall, our results imply that aggressive trade credit policies can provide firm management with a unique channel to improve product market performance.
Keywords: Trade credit; Supplier financing; Working capital; Operating performance
JEL Classification: G31, G32, G39, M49
Suggested Citation: Suggested Citation