Do the trade credit influence firm performance in agro-industry? Evidence from Thailand

Abstract

This paper aims to examine the relationship between trade credit and corporate performance. Empirical evidence on the impact of trade credit investment on firm performance remains unclear. For agro firms, the implications of this relationship have not been thoroughly discussed. Using a panel sample consisting of publicly listed agro firms in Thailand for 2001–2020. The sample set consists of 51 Thai-listed firms with 708 firm-year observations. We employ panel ordinary least squares (OLS) regressions and GMM regressions to obtain the estimation results. We find that going to invest in trade credit increases operating performance significantly, which is what the commercial, financing, and transaction theories of trade credit predicted would happen. Furthermore, cost-benefit analysis should serve as a guide for firms’ trade credit investment decisions. In particular, firms should be aware of the extra cost of trade credit investment and weigh it against the benefits of improved performance.