The Use of Supplier Financing and Shareholder Wealth
33 Pages Posted: 3 Oct 2011 Last revised: 13 Feb 2012
Date Written: September 16, 2011
We examine market value implications of managing liquidity via supplier financing. Results suggest a direct relation between shareholder wealth and use of trade credit. Further, the relation exhibits significant cross-sectional variation. In particular, industry affiliation influences the market value of trade credit, with respect to liquidity of goods sold and product market competition. Results also suggest the excess returns-supplier financing association strengthens with financial constraint, which supports the financing motive for trade credit. Findings also provide some support for the transactions cost motive. Overall, we conclude that shareholders acknowledge the strategic benefits associated with access to and use of supplier financing and that downstream firms’ characteristics influence from the value relevance of the strategic use of trade credit.
Keywords: Trade Credit, Accounts Payable, Working Capital, Shareholder Wealth
JEL Classification: G30, G39
Suggested Citation: Suggested Citation