Organizational Resilience and Performance: Analysis of the Relevance of Suppliers' Trade Credit and Bank Diversification in the Spanish Construction Industry

Esteban Lafuente,Jordi Vilajosana,Felipe Strassburger,Yancy Vaillant

doi:10.2139/ssrn.3022425

Abstract

The objective of this study is to determine the effect of relevant variables related to strategic sources of financial resources — in our case, suppliers’ trade credit and use of financial institutions — over performance among Spanish construction firms. By analyzing a large dataset including information for 3590 Spanish construction businesses during 2004-2011, the results of the longitudinal analysis reveal that trade credit granted by suppliers constitute a relevant source of liquidity and financial resources that positively impacts economic performance. During the period of economic downturn that affected Spain after 2008, those construction firms that benefited from longer average payment periods from their suppliers reported superior performance levels. Additionally, we find that bank diversification is conducive to performance but only during the crisis period: performance is significantly higher in businesses that work with a greater number of financial institutions.

Highlights

This study investigates the role of different sources of financial resources - namely suppliers’ trade credit and financial institutions - on the economic performance of Spanish construction businesses in periods of growth and economic decline
We argue that in the crisis period that follows the bursting of a housing bubble, the incentives to use suppliers’ trade credit and to diversify traditional sources of finance have important performance implications for businesses in the construction sector
By analysing the Spanish construction sector during the period 2004 to 2011, our approach offers a compelling vision of how construction businesses enhance their performance using suppliers’ trade credit and banking finance diversification, in terms of the number of financial institutions used by businesses

Summary

Introduction

This study investigates the role of different sources of financial resources - namely suppliers’ trade credit and financial institutions - on the economic performance of Spanish construction businesses in periods of growth and economic decline. As a reaction to organizational changes - i.e., downsizing and bankruptcy - derived from the economic downturn that started in 2008, scholars have recently focused their efforts on analysing the effect that the financial strategy of construction firms has on performance In this regard, special attention is paid to the effects on organizational performance of the management of liquidity levels (Bigelli and Sánchez-Vidal, 2012); the management of suppliers and the role of the trade credit granted by them (Cuñat, 2007; Garcia-Appendini and Montoriol-Garriga, 2013); and the dependence on financial institutions as a source of capital (Chava and Roberts, 2008; Kahle and Stulz, 2013)

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