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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

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.

Suggested Citation

  • Richard Pike & Nam Sang Cheng & Karen Cravens & Dawne Lamminmaki, 2005. "Trade Credit Terms: Asymmetric Information and Price Discrimination Evidence From Three Continents," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5-6), pages 1197-1236.
  • Handle: RePEc:bla:jbfnac:v:32:y:2005-06:i:5-6:p:1197-1236
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    Citations

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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. Astrid K. Chludek, 2011. "A note on the price of trade credit," Managerial Finance, Emerald Group Publishing, vol. 37(6), pages 565-574, May.
    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. Van Horen, Neeltje, 2007. "Customer Market Power and the Provision of Trade Credit; Evidence from Eastern Europe and Central Asia," MPRA Paper 3378, University Library of Munich, Germany.
    5. 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.
    6. Pedro J. García-Teruel & Pedro Martínez-Solano & Juan P. Sánchez-Ballesta, 2014. "Supplier Financing and Earnings Quality," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(9-10), pages 1193-1211, November.
    7. Anthony Dhieux & Eric Severin & Ludovic Vigneron, 2015. "Does Accounting Information Quality Matter For Smes’ Use Of Trade Credit?
      [Qualite De L’Information Comptable Et Recours Au Credit Fournisseur]
      ," Post-Print hal-01188869, HAL.
    8. Jaleel Ahmed & Hui Xiaofeng & Shahid Kalim Khan, 2015. "Investigation of trade credit demand patterns in effect with firm-bank relationship: A panel data approach," Journal of Asian Business Strategy, Asian Economic and Social Society, vol. 5(3), pages 46-54, March.

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