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Is There Mimicking Behavior in Firms’ Trade Credit Decisions?

Author

Listed:
  • Rind, Asad Ali
  • Boubaker, Sabri
  • Dang, Viet Anh

Abstract

This paper investigates whether peer firms affect trade credit policy. Using data on US listed firms for the period 1997–2015, we document strong evidence of peer influence on trade credit provision. This result remains significant after using alternative trade credit measures, different peer proxies, and addressing endogeneity concerns using an instrumental variable approach based on the stock price shocks of industry peers. Our cross-sectional analysis further shows that peer effects in trade receivables only exist among suppliers that face fierce product market competition, consistent with the notion that firms closely mimic their peers due to competitive pressure. There is, however, mixed, and weak evidence on the argument that peer mimicking is driven by learning and reputational motives. Overall, our study highlights the important role of peer firm behavior in shaping a firm’s trade credit policy.

Suggested Citation

  • Rind, Asad Ali & Boubaker, Sabri & Dang, Viet Anh, 2021. "Is There Mimicking Behavior in Firms’ Trade Credit Decisions?," Review of Corporate Finance, now publishers, vol. 1(1-2), pages 81-134, April.
    • Handle: RePEc:now:jnlrcf:114.00000003
    DOI: 10.1561/114.00000003
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    Cited by:

    1. Ye, Zhiwei & Shahab, Yasir & Riaz, Yasir & Ntim, Collins G., 2023. "Strategic deviation and the cost of debt financing," Economic Modelling, Elsevier, vol. 125(C).
    2. Abdullah Al Mahmud & Muhammad Shahin Miah & Mohammad Rakib Uddin Bhuiyan, 2022. "Does Trade Credit Financing Affect Firm Performance? Evidence from an Emerging Market," IJFS, MDPI, vol. 10(4), pages 1-19, September.

    More about this item

    Keywords

    Trade credit; accounts receivable; firm behavior; peer effects; mimicking;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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