Credit where it's due: The synergy of trade credit and innovation in R&D-driven firms

Bahadır Karakoç

International Journal of Production Economics, 2025, vol. 283, issue C

Abstract: In business transactions, information asymmetry poses significant challenges, particularly for innovative firms. This study investigates the strategic role of trade credit in overcoming these obstacles and fostering growth in R&D-investing companies. We hypothesize that firms offering more trade credit (H1) and investing in R&D (H2) can enhance their growth prospects. Furthermore, we propose that combining R&D investments and trade credit (H3) leads to greater growth than either activity alone, as trade credit facilitates the commercialization of R&D outputs while mitigating information asymmetry. We analyze trade credit's amount and duration using the Difference Generalized Method of Moments (GMM) to address potential endogeneity and firm-level heterogeneity. This is complemented with Fixed Effects Ordinary Least Squares (FE-OLS) estimations for robustness. Our findings are further supported through two-stage least squares (2SLS) and additional GMM analyses with an external instrument. The results reveal that while both R&D investments and trade credit supply individually contribute to growth, firms combining R&D with trade credit experience significantly higher growth rates. This highlights trade credit's critical role in facilitating the commercialization of R&D outputs. The findings also underscore the critical importance of communication and cooperation between business partners in fostering growth.

Keywords: Commercialization; Innovation; Research and development; Supply chain; Trade credit (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:283:y:2025:i:c:s0925527325000611

DOI: 10.1016/j.ijpe.2025.109576

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