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Credit sales and advance payments: substitutes or complements?

Author

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  • Simona Mateut

    ()

  • Piercarlo zanchettin

    ()

Abstract

We investigate the interaction between two terms of payment, supplier credit sales and customer advance payment. We find evidence that advance payments may signal customer creditworthiness and increase trade credit extension when we control for vendor size in international transactions or for the traded goods characteristics.

Suggested Citation

  • Simona Mateut & Piercarlo zanchettin, 2012. "Credit sales and advance payments: substitutes or complements?," Discussion Papers in Economics 12/18, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:12/18
    as

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    File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp12-18.pdf
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    References listed on IDEAS

    as
    1. Eck, Katharina & Engemann, Martina & Schnitzer, Monika, 2012. "How Trade Credits Foster International Trade," CEPR Discussion Papers 8954, C.E.P.R. Discussion Papers.
    2. JaeBin Ahn & Mary Amiti & David E. Weinstein, 2011. "Trade Finance and the Great Trade Collapse," American Economic Review, American Economic Association, vol. 101(3), pages 298-302, May.
    3. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-872, September.
    4. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-691.
    5. 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.
    6. Greenaway, David & Guariglia, Alessandra & Kneller, Richard, 2007. "Financial factors and exporting decisions," Journal of International Economics, Elsevier, vol. 73(2), pages 377-395, November.
    7. Bougheas, Spiros & Mateut, Simona & Mizen, Paul, 2009. "Corporate trade credit and inventories: New evidence of a trade-off from accounts payable and receivable," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 300-307, February.
    8. Mariassunta Giannetti & Mike Burkart & Tore Ellingsen, 2011. "What You Sell Is What You Lend? Explaining Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 1261-1298.
    9. Chee K. Ng & Janet Kiholm Smith & Richard L. Smith, 1999. "Evidence on the Determinants of Credit Terms Used in Interfirm Trade," Journal of Finance, American Finance Association, vol. 54(3), pages 1109-1129, June.
    10. Arup Daripa & Jeffrey Nilsen, 2011. "Ensuring Sales: A Theory of Inter-firm Credit," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 245-279, February.
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    Cited by:

    1. Mateut, Simona, 2014. "Reverse trade credit or default risk? Explaining the use of prepayments by firms," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 303-326.
    2. Kemal Turkcan, 2016. "Evolving Patterns of Payment Methods in Turkish Foreign Trade," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 2(1), pages 3-29, June.
    3. Katharina Eck & Martina Engemann & Monika Schnitzer, 2015. "How trade credits foster exporting," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 73-101, February.
    4. repec:eee:proeco:v:197:y:2018:i:c:p:35-42 is not listed on IDEAS

    More about this item

    Keywords

    trade credit; advance payment; signalling;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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