Trade credit and SME profitability

Cristina Martínez-Sola (), Pedro García-Teruel () and Pedro Martínez-Solano ()

Small Business Economics, 2014, vol. 42, issue 3, 577 pages

Abstract: Financial literature discusses the motives for trade credit provision by suppliers in depth. However, there is no empirical evidence of the effect of granting trade credit on the profitability of small and medium-sized firms. We examine the profitability implications of providing financing to customers for a sample of 11,337 Spanish manufacturing SMEs during the 2000–2007 period. This article also examines the differences in the profitability of trade credit according to financial, operational, and commercial motives. The findings suggest that managers can improve firm profitability by increasing their investment in receivables and that the effect is greater for financially unconstrained firms (larger and more liquid firms), for firms with volatile demand, and for firms with bigger market shares. Copyright Springer Science+Business Media New York 2014

Keywords: Accounts receivable; Trade credit; Profitability; SMEs; L26 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:sbusec:v:42:y:2014:i:3:p:561-577

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DOI: 10.1007/s11187-013-9491-y

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