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Firm Heterogeneity and Trade Credit Behaviour

Author

Listed:
  • Stylianos Asimakopoulos

    (University of Bath)

  • Filipa Da Silva Fernandes

    (University of Aberdeen)

  • Yiannis Karavias

    (University of Birmingham)

Abstract

Why do some firms become primarily suppliers of trade credit and other firms become primarily buyers of trade credit? A theoretical model is proposed and suggests that the determining factors of the net trade credit position are size and liquidity. The model predicts a nonmonotonic net trade credit - firm performance nexus with a net trade credit threshold splitting firms to sufficiently "small and illiquid" that benefit more from receiving trade credit, even when operating at a negative net trade credit, and "large and more liquid" firms that benefit more from extending trade credit. The results of the model are confirmed empirically using a large sample of European SMEs, and the net trade credit threshold is estimated while dealing carefully with endogeneity and nonmonotonicity, simultaneously.

Suggested Citation

  • Stylianos Asimakopoulos & Filipa Da Silva Fernandes & Yiannis Karavias, 2020. "Firm Heterogeneity and Trade Credit Behaviour," Discussion Papers 20-20, Department of Economics, University of Birmingham.
    • Handle: RePEc:bir:birmec:20-20
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    References listed on IDEAS

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    More about this item

    Keywords

    net trade credit; threshold; nonmonotonic relationship; size and liquidity.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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