IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/2792.html
   My bibliography  Save this paper

Trade Credit as a Competitiveness Tool;Evidence from Developing Countries

Author

Listed:
  • Van Horen, Neeltje

Abstract

Statistics show that the sale of goods on credit is widespread among firms even when they are financially constrained and thus face relatively high costs in providing trade credit. A possible explanation for this is the use of trade credit as a competitiveness tool. By analyzing both the impact of customer as well as producer market power on a firm’s decision to provide trade credit, we examine whether trade credit is indeed used as a way to lock in customers by firms in developing countries. Using a new dataset containing a large number of firms in 42 developing countries, we find strong evidence that an important driving force behind the decision to provide trade credit is the urge to be competitive. This especially holds for those firms that still have to establish a solid market reputation and for firms located in countries with an underdeveloped banking sector.

Suggested Citation

  • Van Horen, Neeltje, 2004. "Trade Credit as a Competitiveness Tool;Evidence from Developing Countries," MPRA Paper 2792, University Library of Munich, Germany, revised Mar 2005.
  • Handle: RePEc:pra:mprapa:2792
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/2792/1/MPRA_paper_2792.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships and Informal Credit in Vietnam," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1285-1320.
    2. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-872, September.
    3. 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.
    4. Raymond Fisman & Mayank Raturi, 2004. "Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 345-352, February.
    5. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    6. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    7. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
    8. Nilsen, Jeffrey H, 2002. "Trade Credit and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 226-253, February.
    9. Fafchamps, Marcel, 1997. "Trade credit in Zimbabwean manufacturing," World Development, Elsevier, vol. 25(5), pages 795-815, May.
    10. Mian, Shehzad L & Smith, Clifford W, Jr, 1992. " Accounts Receivable Management Policy: Theory and Evidence," Journal of Finance, American Finance Association, vol. 47(1), pages 169-200, March.
    11. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, vol. 43(5), pages 1127-1141, December.
    12. Biais, Bruno & Gollier, Christian, 1997. "Trade Credit and Credit Rationing," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 903-937.
    13. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Financial and legal constraints to firm growth - Does size matter?," Policy Research Working Paper Series 2784, The World Bank.
    14. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2001. "Firms as financial intermediaries - evidence from trade credit data," Policy Research Working Paper Series 2696, The World Bank.
    15. J. Stephen Ferris, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, Oxford University Press, vol. 96(2), pages 243-270.
    16. Vincente Cuñat, 2000. "Trade Credit: Suppliers as Debt Collectors and Insurance Providers," FMG Discussion Papers dp365, Financial Markets Group.
    17. 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.
    18. Michael S. Long & Ileen B. Malitz & S. Abraham Ravid, 1993. "Trade Credit, Quality Guarantees, and Product," Financial Management, Financial Management Association, vol. 22(4), Winter.
    19. Benjamin S. Wilner, 2000. "The Exploitation of Relationships in Financial Distress: The Case of Trade Credit," Journal of Finance, American Finance Association, vol. 55(1), pages 153-178, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fabbri, Daniela & Klapper, Leora, 2008. "Market power and the matching of trade credit terms," Policy Research Working Paper Series 4754, The World Bank.
    2. Dary, Stanley, 2017. "Trade Credit Financing In African Agro-Food Manufacturing Industry: Incidence And Motives," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252850, Southern Agricultural Economics Association.
    3. Galia Taseva, 2012. "Trade Credit Terms between the Firms in Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 110-136.
    4. Leora Klapper & Luc Laeven & Raghuram Rajan, 2012. "Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 838-867.
    5. Galya Taseva, 2012. "Overdue Intercorporate Debts in Bulgaria," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 76-94.
    6. Hyndman, Kyle & Serio, Giovanni, 2010. "Competition and inter-firm credit: Theory and evidence from firm-level data in Indonesia," Journal of Development Economics, Elsevier, vol. 93(1), pages 88-108, September.
    7. Klapper, Leora, 2006. "The role of factoring for financing small and medium enterprises," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3111-3130, November.
    8. Alarcón, Silverio, 2008. "The Role of Trade Credit in the Spanish Agrogood Industry," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43861, European Association of Agricultural Economists.

    More about this item

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:2792. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.