Determinants of Corporate Trade Credit: An Empirical Study on Korean Firms

Woo Sung Kim
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Woo Sung Kim: Department of Business Administration, College of Business Administration, Konkuk University, 120, Neungdong-ro Gwangjin-gu, Seoul 05029, Korea

International Journal of Economics and Financial Issues, 2016, vol. 6, issue 2, 414-419

Abstract: This study is designed to determine the motives for trade credit in Korean firms. Based on data collected from 14,660 firm-year observations running from 1992 to 2011 on the Korean Stock Exchange, this paper finds strong evidence on determinants of trade credit based on financial characteristics. The principal result is that older firms with larger size, lower growth, and higher profits tend to extend accounts receivable. This evidence, while consistent with the access to financing hypothesis, is difficult to reconcile with the growth hypothesis and price discrimination hypothesis. Second, this paper provides evidence that firms with larger size and greater leverage, as well as young firms, appear to use accounts payable. This finding, while consistent with the financial constraint hypothesis, is difficult to harmonize with the financing and growth hypothesis. The paper contributes to the argument about trade credit motives. It may help managers in making financial policy concerning improving firm value in the Korean market.

Keywords: Trade Credit; Accounts Receivable; Accounts Payable (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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