Shareholder Returns from Supplying Trade Credit
Financial Management, Forthcoming
44 Pages Posted: 3 May 2010 Last revised: 26 Jul 2011
Date Written: July 25, 2011
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
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