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A dynamic approach to accounts receivable: the case of Jordanian firms

Ala’a Adden Abuhommous () and Tareq Mashoka ()
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Ala’a Adden Abuhommous: Business School, Mutah University
Tareq Mashoka: Business School, Mutah University

Eurasian Business Review, 2018, vol. 8, issue 2, 171-191

Abstract: Abstract This paper studies the trade credit policy of firms for a sample of Jordanian listed firms in the period 2000–2014. In addition, this paper tests whether the accounts receivable decisions follow a model of partial adjustment. The generalized methods of moments estimation results suggest that firms have a target accounts receivable level and move toward this target quickly. In addition, we find that short term finance, internal cash flow, positive sales growth, product quality, and profitability are playing an important role in the trade credit policy. The study recommends that firms must pay attention to their relationship with customers because they represent an important investment opportunity. Furthermore, firms should maintain close relationships with banks because it influences their trade credit policy.

Keywords: Accounts receivable; Trade credit policy; Optimal accounts receivable ratio; Partial adjustment model (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:eurasi:v:8:y:2018:i:2:d:10.1007_s40821-017-0074-8