Stock price informativeness and supplier trade credit extensions

Rongrong Zhang

The Quarterly Review of Economics and Finance, 2023, vol. 90, issue C, 284-294

Abstract: We show that suppliers cut back on trade credit extensions as they learn about future growth opportunities from their stock prices. We further explore how suppliers’ financial strength, relationship specific investments (RSI), product characteristics, and market power moderate the effect of price informativeness on trade credit. We show that the effect of price informativeness on trade credit is more pronounced when suppliers are financially constrained, or have less RSI, or are less exposed to inventory diversion risks, or have high market power. These results suggest that stock price informativeness is a second order factor whereas financial strength, relationship specific investments (RSI), product characteristics, and market power are the first order factors in shaping suppliers’ trade credit policies.

Keywords: Stock price informativeness; Trade credit; Cash reserve (search for similar items in EconPapers)
JEL-codes: G14 G30 G31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:90:y:2023:i:c:p:284-294

DOI: 10.1016/j.qref.2022.10.008

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