Shareholder Returns from Supplying Trade Credit

Financial Management, Forthcoming

44 Pages Posted: 3 May 2010 Last revised: 26 Jul 2011

See all articles by Matthew D. Hill

Matthew D. Hill

Arkansas State University

G. W. Kelly

University of Southern Mississippi; Mississippi State University - Department of Finance and Economics

G. Brandon Lockhart

Clemson University - Department of Finance

Date Written: July 25, 2011

Abstract

We examine shareholder wealth implications of supplying financing to customers. Robust results show that excess returns and trade receivables are directly and significantly related. Further evidence indicates the value of receivables is higher for suppliers with stronger motives relating to operating and contracting costs. Results also suggest a discounted value of receivables for financially unconstrained firms. Overall, we conclude that investors recognize trade credit as an effective instrument in mitigating frictions hindering sales growth. Thus, certain suppliers are positioned to derive increased strategic benefits from credit policy.

Keywords: Trade credit, working capital, liquidity, product markets, firm value

Suggested Citation

Hill, Matthew D. and Kelly, Gary Wayne and Lockhart, G. Brandon, Shareholder Returns from Supplying Trade Credit (July 25, 2011). Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1597749

Matthew D. Hill (Contact Author)

Arkansas State University ( email )

2713 Pawnee
P.O. Box 1750
Jonesboro, AR 72467-115
United States

Gary Wayne Kelly

University of Southern Mississippi ( email )

118 College Drive
#5076
Hattiesburg, MS 39406
United States
601 266 4959 (Phone)
601 266 6110 (Fax)

Mississippi State University - Department of Finance and Economics ( email )

Mississippi State, MS 39762
United States

G. Brandon Lockhart

Clemson University - Department of Finance ( email )

Clemson, SC 29634
United States

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