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

Abstract: 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
Date: 2020-08
New Economics Papers: this item is included in nep-bec
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