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Product Quality and Payment Policy


  • Emery, Gary W
  • Nayar, Nandkumar


This paper provides a theoretical explanation for the choice of payment terms under which a company sells its products. In our model, these terms are chosen to permit sellers or buyers to specialize at repairing defects if they are equally well-informed about quality or if one has significantly lower repair costs than the other. Otherwise, the terms are chosen to signal product quality. We also develop the empirical implications of this theory by predicting a seller's choice of payment terms based on the characteristics of its product market. Copyright 1998 by Kluwer Academic Publishers

Suggested Citation

  • Emery, Gary W & Nayar, Nandkumar, 1998. "Product Quality and Payment Policy," Review of Quantitative Finance and Accounting, Springer, vol. 10(3), pages 269-284, May.
  • Handle: RePEc:kap:rqfnac:v:10:y:1998:i:3:p:269-84

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    3. Beaver, William & Lambert, Richard & Morse, Dale, 1980. "The information content of security prices," Journal of Accounting and Economics, Elsevier, vol. 2(1), pages 3-28, March.
    4. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
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    6. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February.
    7. DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
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    Cited by:

    1. Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2013. "Are trade creditors relationship lenders?," Japan and the World Economy, Elsevier, vol. 25, pages 24-38.
    2. Raymond Fisman & Inessa Love, 2003. "Trade Credit, Financial Intermediary Development, and Industry Growth," Journal of Finance, American Finance Association, vol. 58(1), pages 353-374, February.
    3. Mariarosaria Agostino & Francesco Trivieri, 2014. "Does trade credit play a signalling role? Some evidence from SMEs microdata," Small Business Economics, Springer, vol. 42(1), pages 131-151, January.
    4. Carole Howorth & Beat Reber, 2003. "Habitual late payment of trade credit: an empirical examination of UK small firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(6-7), pages 471-482.
    5. El Ghoul, Sadok & Zheng, Xiaolan, 2016. "Trade credit provision and national culture," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 475-501.
    6. Cristina Martínez Sola & Pedro J. García-Teruel & Pedro Martínez Solano, 2012. "Trade credit policy and firm value," Working Papers. Serie EC 2012-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. TSURUTA Daisuke & UCHIDA Hirofumi, 2013. "Real Driver of Trade Credit," Discussion papers 13037, Research Institute of Economy, Trade and Industry (RIETI).

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