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Trade Credit Terms: Asymmetric Information and Price Discrimination Evidence From Three Continents

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  • Richard Pike
  • Nam Sang Cheng
  • Karen Cravens
  • Dawne Lamminmaki
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    Abstract

    Trade credit terms offer firms contractual solutions to informational asymmetries between buyers and sellers. The credit period permits buyers to reduce uncertainty concerning product quality prior to payment, while the seller can reduce uncertainty concerning buyer payment intentions by prescribing payment before/on delivery or through two-part payment terms and other mechanisms. Variation in trade credit terms also offers firms price discriminating opportunities. This study, drawing on the responses of 700 large firms in the US, UK and Australia, explores trade credit terms through the twin objectives of reducing information asymmetries and discriminatory pricing. Support is found for both theories. Copyright Blackwell Publishers Ltd, 2005.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

    Volume (Year): 32 (2005-06)
    Issue (Month): 5-6 ()
    Pages: 1197-1236

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    Handle: RePEc:bla:jbfnac:v:32:y:2005-06:i:5-6:p:1197-1236

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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    Cited by:
    1. Mateut, Simona & Zanchettin, Piercarlo, 2013. "Credit sales and advance payments: Substitutes or complements?," Economics Letters, Elsevier, vol. 118(1), pages 173-176.
    2. Van Horen, Neeltje, 2007. "Customer market power and the provision of trade credit : evidence from Eastern Europe and Central Asia," Policy Research Working Paper Series 4284, The World Bank.
    3. Philip Leitch & Dawne Lamminmaki, 2009. "Refining measures to improve performance measurement of the accounts receivable collection function," Discussion Papers in Accounting accounting:200901, Griffith University, Department of Accounting, Finance and Economics.
    4. Nielen, Sebastian, 2013. "Product Innovation and Trade Credit Demand and Supply: Evidence from European Countries," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79997, Verein für Socialpolitik / German Economic Association.
    5. Astrid K. Chludek, 2011. "A note on the price of trade credit," Managerial Finance, Emerald Group Publishing, vol. 37(6), pages 565-574, June.

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