Abstract
The aim of this paper is to present a comparative study of trade credit indicators and the possible determinants of trade credit for firms acting in the construction sector, using a sample of 958 medium and large firms for the period 2004-2013. The objective of the study is to identify and examine selected variables that may determine trade credit used and provided by selected firms. The sample is derived from the Amadeus database. The examined firms were ones that have sold and bought on credit. The data was organised as panel-data and quantitative analyses were performed. This study demonstrates results that firms with higher trade receivables are less profitable; a positive correlation was found between trade receivables and liquidity, whereas a negative correlation was detected between trade receivables and gearing; larger firms provide and obtain more trade credit than medium firms; more profitable firms use less gearing; firms with higher profit margin are more liquid and more liquid firms use less gearing; based on an average and overall terms, there is not such a clear distinction between Western and Eastern European countries from viewpoint of net trade credit and net trade period.
Highlights
Firms usually have various funding solutions to finance their investments and operational activity
The aim of this paper is to study the trade credit indicators and the possible determinants of increase/decrease trade credit using a sample of medium and large firms acting in construction sector, which is a sector with great periods of collection and credit
Yang (2011) investigated impacts of trade credit on firms’ inventory dynamics and analysed the relationship between trade credit and bank loans; he found that, during tight monetary periods, trade credit operates mainly as a substitute for bank borrowing, while, during looser monetary episodes even when the economy is weak, trade credit and bank loans are dominated by a complementary effect
Summary
Firms usually have various funding solutions to finance their investments and operational activity. Any company uses buying and selling on credit at the same time, meaning that both situations can occur simultaneously; thereby are generated, on the one side, accounts payable and, on the other side, accounts receivable It shows that firms do not realise all sales in cash, as they do not pay all invoices with cash on the transaction date. Trade credit is a funding source more used by small and medium European firms, and in large firms (Delannay and Weill, 2004; Ono, 2001; Yang, 2011) These firms have more trade receivables than a third of total assets, and use trade payable in a smaller measure than trade receivable. Performing an analysis of trade credit, used by Chinese industrial companies divided by the type of owners and by the profitability, Cull et al (2009) found that lending becomes less severe when the allocation of lending becomes more efficient and that the amount of trade credit extended by private firms declined
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