Firm Heterogeneity and Trade Credit Behaviour
Stylianos Asimakopoulos (),
Filipa Fernandes and
Yiannis Karavias ()
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Filipa Fernandes: University of Aberdeen
Discussion Papers from Department of Economics, University of Birmingham
Why do some firms become primarily suppliers of trade credit and other firms become primarily buyers of trade credit? A theoretical model is proposed and suggests that the determining factors of the net trade credit position are size and liquidity. The model predicts a nonmonotonic net trade credit - firm performance nexus with a net trade credit threshold splitting firms to sufficiently "small and illiquid" that benefit more from receiving trade credit, even when operating at a negative net trade credit, and "large and more liquid" firms that benefit more from extending trade credit. The results of the model are confirmed empirically using a large sample of European SMEs, and the net trade credit threshold is estimated while dealing carefully with endogeneity and nonmonotonicity, simultaneously.
Keywords: net trade credit; threshold; nonmonotonic relationship; size and liquidity. (search for similar items in EconPapers)
JEL-codes: C23 G01 G30 L25 (search for similar items in EconPapers)
Pages: 53 pages
New Economics Papers: this item is included in nep-bec
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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:20-20
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