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Do firms chase trade credit target?

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  • Luo, Haowen

Abstract

This study applies a partial-adjustment model to examine the dynamics of trade credit and to test the hypothesis that firms actively move toward an optimal (target) level of trade credit. The results indicate that typical firms close approximately 70% of the gap between its actual and target trade credit each year, supporting the idea that firms have a target level of trade credit. In addition, the estimated speed of adjustment supports the dynamic version of trade off framework where firms consider of the cost of adjustments when making adjustment decisions.

Suggested Citation

  • Luo, Haowen, 2021. "Do firms chase trade credit target?," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321001070
    DOI: 10.1016/j.frl.2021.102026
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    References listed on IDEAS

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    Cited by:

    1. Luo, Haowen, 2022. "COVID-19 and trade credit speed of adjustment," Finance Research Letters, Elsevier, vol. 47(PA).

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    More about this item

    Keywords

    Trade credit; Target; Speed of adjustment;
    All these keywords.

    JEL classification:

    • G - Financial Economics

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