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ON THE DIMINISHING RETURN TO TRADE CREDIT

Matthew D. Hill, G.W. Kelly and Vinod Venkiteshwaran

Journal of Financial Research, 2015, vol. 38, issue 3, 305-317

Abstract: type="main" xml:lang="en">

We examine the relation between excess returns and corporate trade credit policy. Robust results suggest a lower market value of receivables for firms with higher lagged receivables levels, consistent with diminishing returns from extending trade credit. Further findings indicate that the diminishing return to trade credit varies with industry affiliation, market share, and financial constraint. Our results emphasize the importance of actively monitoring trade credit levels.

Date: 2015
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