Trade credit and cost stickiness

Mabel D. Costa and Ahsan Habib

Accounting and Finance, 2021, vol. 61, issue 1, 1139-1179

Abstract: Using a large sample of US data, we examine the relation between trade credit and cost behaviour and further investigate the moderating effects on this relation of agency problem, product market competition, and customer concentration. We find that firms using high levels of trade credit exhibit lower cost stickiness and this is prevalent in the high agency problem sub‐sample. In addition, in a non‐competitive market, where the agency problem arises owing to lack of competition, trade credit plays an external monitoring role by attenuating cost stickiness. However, high customer concentration curtails this monitoring ability.

Date: 2021
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