Substitute or complement? The use of trade credit as a financing source among SMEs

Darush Yazdanfar and Peter Öhman

Management Research Review, 2017, vol. 40, issue 1, 10-27

Abstract: Purpose - This study aims to investigate trade credit as a financing source among small- and medium-sized enterprises (SMEs), particularly the influence of short-term debt, long-term debt and profitability on the use of such credit. Design/methodology/approach - Ordinary least squares (OLS), fixed-effects and generalized method of moments (GMM) system models were used to analyze a large cross-sectional panel data set of 15,897 Swedish SMEs in five industry sectors for the 2009-2012 period. Findings - The study provides empirical evidence that long-term debt and profitability each significantly and negatively influence trade credit (i.e. accounts payable) and that short-term debt positively influences trade credit. Notably, while trade credit seems to complement other short-term debt, it replaces long-term debt. Moreover, firm size in terms of sales is positively related and firm age is negatively related to accounts payable. Industry affiliation is another significant explanatory variable. Practical implications - The results provide debt holders, potential investors, policymakers and academic researchers with insights into the relationship between trade credit demand, on the one hand, and external financing (i.e. short- and long-term debt) and internal retained earnings (i.e. profit), on the other. From a manager’s perspective, the findings may be important for decision-making regarding trade credit use. Originality/value - When investigating trade credit determinants, the literature has seldom distinguished between short- and long-term debt and considered that they may influence the use of trade credit in different ways. The present study adds to the literature by using OLS, fixed-effects and GMM system models to analyze a large cross-sectoral sample in a high-tax country where both bank loans and trade credit are considered important financing instruments.

Keywords: Trade credit; Small- and medium-sized enterprises; Accounts payable; Long-term debt; Short-term debt (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:mrrpps:mrr-06-2015-0153

DOI: 10.1108/MRR-06-2015-0153

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