Trade Credit Policy: Theory and Empirical Evidence

22 Pages Posted: 12 Nov 2004

See all articles by Rafael Bastos

Rafael Bastos

Faculdade Ateneu - Departamento de Administracao de Empresas; Universidad de Salamanca (Spain) - Department Administracion y Economia de la Empresa; IFCE

Julio Pindado

University of Salamanca - Administration and Business Economics

Date Written: September 2004

Abstract

This paper proposes an agency theory to explain trade credit policy. According to this theory we have developed an agency model based on the adverse selection and moral hazard phenomena arising from the relation between sellers and buyers. This model has been estimated by using panel data methodology applied to UK companies. Our findings strongly support our agency model. We find that smaller firms, those with a smaller proportion of fixed assets, and those that are less profitable extend more trade credit, whereas firms with a high proportion of variable costs and high percentage of bad debts extend less.

Keywords: Trade Credit, Agency Theory, Adverse Selection, Moral Hazard

JEL Classification: G30

Suggested Citation

Bastos, Rafael Rabelo and Pindado, Julio, Trade Credit Policy: Theory and Empirical Evidence (September 2004). Available at SSRN: https://ssrn.com/abstract=616681 or http://dx.doi.org/10.2139/ssrn.616681

Rafael Rabelo Bastos (Contact Author)

Faculdade Ateneu - Departamento de Administracao de Empresas ( email )

Avenida Coletor Antonio Gadelha, 621, Messejana
Fortaleza, Cear
Brazil
0055 85 34745151 (Phone)

HOME PAGE: http://www.fate.edu.br

Universidad de Salamanca (Spain) - Department Administracion y Economia de la Empresa ( email )

Campus Miguel de Unamuno
37008 Salamanca, Salamanca 23007
Spain

IFCE ( email )

Fortaleza, Ceará
Brazil
0055 85 33073610 (Phone)

HOME PAGE: http://www.ifce.edu.br

Julio Pindado

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain
+34 923 294640 (Phone)
+34 923 294715 (Fax)

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