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Corporate trade credit and inventories: New evidence of a tradeoff from accounts payable and receivable

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  • Simona Mateut
  • Spiros Bougheas
  • Paul Mizen

Abstract

Trade credit is an important source of finance for firms and has been well researched, but the focus has been on financial trade-offs. In this paper, we consider the trade-offs with inventories and develop a simple model that recognizes the incentives a firm faces to offer and receive trade credit. Our model identifies the response of accounts payable and accounts receivable to changes in the cost of inventories, profitability, risk and liquidity, and importantly, this influence operates through a production channel. Our results support the model and complement many existing studies focused on explaining the financial terms of trade credit.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 08/09.

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Handle: RePEc:not:notcfc:08/09

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Keywords: Trade credit; Inventories.;

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References

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Citations

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Cited by:
  1. Simona Mateut & Piercarlo zanchettin, 2012. "Credit sales and advance payments: substitutes or complements?," Discussion Papers in Economics, Department of Economics, University of Leicester 12/18, Department of Economics, University of Leicester.
  2. Huang, Hui & Shi, Xiaojun & Zhang, Shunming, 2011. "Counter-cyclical substitution between trade credit and bank credit," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(8), pages 1859-1878, August.
  3. Rajendra R. Vaidya, 2011. "The Determinants of trade credit: Evidence from Indian manufacturing firms," Indira Gandhi Institute of Development Research, Mumbai Working Papers, Indira Gandhi Institute of Development Research, Mumbai, India 2011-012, Indira Gandhi Institute of Development Research, Mumbai, India.
  4. Simona Mateut & Paul Mizen & Ydriss Ziane, . "No Going Back: How the Production Process Affects Access to Short-term Credit," Discussion Papers, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) 12/14, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  5. Michalsky, Grzegorz, 2012. "Crisis Caused Changes in Intrinsic Liquidity Value in Non-Profit Institutions," MPRA Paper 43397, University Library of Munich, Germany, revised 19 Dec 2012.
  6. Cristina Martínez-Sola & Pedro García-Teruel & Pedro Martínez-Solano, 2014. "Trade credit and SME profitability," Small Business Economics, Springer, Springer, vol. 42(3), pages 561-577, March.
  7. Simona Mateut & Paul Mizen & Ydriss Ziane, . "No Going Back: The Interactions Between Processed Inventories and Trade Credit," Discussion Papers, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) 11/04, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  8. Ferrando, Annalisa & Mulier, Klaas, 2012. "Do firms use the trade credit channel to manage growth?," Working Paper Series, European Central Bank 1502, European Central Bank.
  9. Fernandez-Corugedo, Emilio & McMahon, Michael & Millard, Stephen & Rachel, Lukasz, 2011. "Understanding the macroeconomic effects of working capital in the United Kingdom," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 959, University of Warwick, Department of Economics.
  10. Michalski, Grzegorz, 2012. "Risk sensitivity indicator as correction factor for cost of capital rate," MPRA Paper 43399, University Library of Munich, Germany, revised 02 Sep 2012.
  11. Aktas, Nihat & Bodt, Eric de & Lobez, Frédéric & Statnik, Jean-Christophe, 2012. "The information content of trade credit," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(5), pages 1402-1413.
  12. Ketskeméty, László & Pálinkó, Éva & Szabó, Márta, 2010. "Kereskedelmi hitelt alakító paraméterek a magyarországi feldolgozóipari vállalatok körében
    [Parameters for commercial credit among Hungary's manufacturing companies]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 994-1012.
  13. Arup Daripa & Jeffrey Nilsen, 2011. "Ensuring Sales: A Theory of Inter-firm Credit," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 3(1), pages 245-79, February.
  14. Alessandra Guariglia & Simona Mateut, . "Political affiliation and trade credit extension by Chinese firms," Discussion Papers 11/12, University of Nottingham, GEP.
  15. Bellouma Meryem, 2011. "Governance Mechanisms and Buyer Supplier Relationship:Static and Dynamic Panel Data Evidence from Tunisian Exporting SMEs," International Journal of Economics and Financial Issues, Econjournals, Econjournals, vol. 1(3), pages 88-98, September.
  16. Jinjarak, Yothin, 2013. "Supply Chains and Credit-Market Shocks: Some Implications for Emerging Markets," ADBI Working Papers, Asian Development Bank Institute 443, Asian Development Bank Institute.
  17. Simona Mateut, . "Reverse trade credit - the use of prepayments by French firms," Discussion Papers, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) 11/12, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  18. Caglayan, Mustafa & Maioli, Sara & Mateut, Simona, 2012. "Inventories, sales uncertainty, and financial strength," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(9), pages 2512-2521.
  19. Mariarosaria Agostino & Francesco Trivieri, 2014. "Does trade credit play a signalling role? Some evidence from SMEs microdata," Small Business Economics, Springer, Springer, vol. 42(1), pages 131-151, January.

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