The role of customer stability in corporate trade credit provision

PurposeThe purpose of this paper is to study the influence of investor sentiment on the supply of trade credit, and further explores the difference of the effect of investor sentiment on the supply of trade credit in the environment of strong market competition and weak market competition.Design/methodology/approachThe authors use panel estimation techniques to examine the impact of investor sentiment in the Chinese securities market on the supply of corporate trade credit.FindingsThis paper finds that investor sentiment has positive impact on trade credit through three channels of motivation, willingness and ability. At the same time, this paper finds that investor sentiment has stronger impact on enterprises in strong market competition than enterprises in weak market competition.Research limitations/implicationsThis paper expands the research on the influence of virtual economy on the real economy, analyzes the difference of the influence of investor sentiment on the supply of trade credit under different market competition conditions.Practical implicationsThe paper perfects the mechanism of trade credit decision-making at this stage, and provides more evidence for the virtual economy to act on the real economy.Social implicationsThis paper provides a theoretical basis for the government functional departments to use the investor sentiment to play a positive role in trade credit to improve the market competition and guide the development of China’s capital market in the direction of rationalization and health.Originality/valueIn combination with market competition environment and industry characteristics, this paper investigates external irrational factors and studies how investor sentiment affects trade credit supply.

This study investigates the relationship between the utilisation of digital payment platforms and the decision of informal firms to engage in the demand for or supply of trade credit. Recognizing the pivotal role of trade credit in alleviating financial constraints for informal enterprises, our research employs a recursive bivariate probit model to assess the impact of digital payment platform usage on both the demand for and supply of trade credit among informal firms in Ghana. Leveraging data from the World Bank Enterprise Survey, we find that 13.83 % of informal firms receive trade credit from suppliers, while 26.89 % extend trade credit to customers. Additionally, 49.6 % of firms use digital payment platforms for their business transactions. The study finds that digital payment platforms increase the probability of firms engaging in the demand and supply of trade credit. It argues that digital payments enhance transaction efficiency, convenience, and security, potentially reducing associated transaction costs and facilitating business interactions across distant locations. Various factors, including firm age, maintenance of accounting records, sales volume, owner experience, credit facilities, internet use for social media marketing, and operating hours, significantly influence the decision to engage in trade credit activities. The robustness of our results is confirmed through alternative estimation techniques. Recommendations include policy interventions aimed at promoting the digitalization of informal firms, supported by government investments in digital infrastructure. It is recommended that firms and their suppliers and customers should adopt these digital payment platforms in order to facilitate their use of trade credit in business transactions. A regulatory environment fostering business trust and responsible use of digital payment platforms is crucial, necessitating measures to ensure data protection, security, and ethical conduct within the digital payments’ ecosystem.

Cash Collateral, Creditor Rights, and the Provision of Trade Credit

We examine how access to debt markets affects firms’ incentives to provide trade credit. Using hand-collected trade credit data between customer-supplier pairs and two exogenous shocks to firms’ debt capacity, we show that better access to debt reduces firms’ provision of trade credit per dollar of sales. The decline in trade credit is concentrated on ex ante powerful customers, but absent for weak ones, suggesting that better access to debt improves firms’ bargaining position relative to powerful customers. The decline in trade credit leads customers to cut investment, increase leverage, and scale back trade credit provision to firms further downstream. This paper was accepted by Camelia Kuhnen, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.04090 .

Suppliers’ trade credit strategies with transparent credit ratings: Null, exclusive, and nonchalant provision

PurposeUsing a sample of manufacturing firms listed in China between 2007 and 2019, first, this paper aims to examine whether peer firms influence corporate trade credit supply. Next, the authors examine the channels through which peer firms influence corporate trade credit supply by testing the predictions of rivalry and information theories. Furthermore, the authors examine the heterogeneity of the industry peer effect on corporate trade credit supply. Finally, the authors examine the economic consequences of the industry peer effect on corporate trade credit supply.Design/methodology/approachThe sample includes all manufacturing firms listed on both the Shanghai and Shenzhen securities exchanges for the sample period from 2007 to 2019, and the data come from the China Stock Market & Accounting Research database. The authors use the fixed effects method to examine the industry peer effect on trade credit supply. The results are robust to a series of robustness tests. To address the potential endogeneity problem, the authors adopt appropriate instruments by estimating instrumental variable models (two-stage least square). The authors use Heckman’s two-stage model to mitigate the sample selection bias.FindingsThe authors provide strong empirical evidence showing that the industry peer effect on trade credit supply exists in the manufacturing sector. It is also found that both competitive rivalry-based and information-based theories can provide explanations of the industry peer effect on trade credit supply. This process is both active imitation and passive reaction. Additional analysis suggests that the industry peer effect on trade credit supply is more pronounced for state-owned firms, firms with low customer concentration and firms with high geographical proximity. The amplification effect and spillover effect are the economic consequences of the industry peer effect on trade credit supply. In other words, the trade credit supply based on peer effect will not only increase the liquidity risk of the firm per se but also induce and increase the liquidity risk of the industry.Originality/valueThe study makes some important contributions. First, the authors find robust evidence that peer firms’ trade credit supply is an important factor in explaining corporate trade credit supply, which extends the literature by connecting the firm’s trade credit supply with the peer effect. Second, the study provides a new micro-perspective for understanding that firms use trade credit supply as a tool of competition, which proves the importance of rivals’ decision-making as a determinant of corporate decisions. Third, the authors examine the industry peer effect on trade credit supply, which not only helps to guide firms to pay more attention to the potential risk and spillover effects of the trade credit supply decision-making relevance but also helps to clarify the industry interaction phenomenon of corporate decision-making behavior. It is an important practical significance to play a role as a bridge between the microlevel of the firm and the meso-level of the industry. Finally, the study provides inspiration for the formulation of industry norms and policies.

Corporate social responsibility and provision of trade credit

Employment protection and the provision of trade credit

Don’t throw in the towel, throw in trade credit!

This paper tries to incorporate previous studies to develop the buyer's inventory model. That is, we want to investigate the buyer's optimal cycle time and optimal payment time under the supplier's trade credit policy and cash-discount policy. Mathematical models have been derived for obtaining the optimal cycle time and optimal payment time for item under the supplier's trade credit and cash discount so that the annual total relevant cost is minimized. Furthermore, numerical examples are given to illustrate the results developed in this paper and to yield managerial implications.

While peer influences on trade credit decisions are well documented, prior studies have overlooked their asymmetric effects across providing and receiving trade credit. Using a comprehensive firm-level dataset from 2004 to 2023, we show that industry contagion significantly affects firms’ provision of trade credit but has limited impact on their receipt of trade credit. Moreover, supplier concentration significantly suppresses contagion in receiving trade credit, whereas customer concentration exerts little moderating effect in providing trade credit. Further analyses reveal that the constraining role of supplier concentration diminishes when firms possess strong institutional bargaining advantages. These findings extend research on peer influences by establishing the asymmetric nature of contagion in trade credit and by highlighting how vertical structural constraints shape firms’ responses to industry-wide pressures. This study also provides practical insights for managing trade credit strategies under both horizontal competition and vertical supply chain dependencies.

Having a close relationship with a customer that accounts for a relatively high proportion of sales may be costly for small suppliers and weaken their bargaining power. Suppliers with a weak bargaining position may then find it difficult to reduce their provision of trade credit during a recession despite the need to do so. Employing Japanese small business data, we conclude that close customer relationships are in fact beneficial (not costly) for small suppliers in trade credit contracts. First, we find that small suppliers tend to offer less trade credit during a recession, even if the supplier–customer relationship is close. Second, notwithstanding a close supplier–customer relationship, we find that small suppliers offer less trade credit to their main customers if the supplier is in financial distress or charged higher interest rates by banks.

We investigate the relation between local financial development and trade credit in an integrated financial market. Our results suggest that trade credit complements the formal finance of small- and medium-sized enterprises (SMEs) at the local level. Provincial banking development in Italy increases the provision of trade credit by SMEs and stimulates the redistribution of loans via trade credit. However, cooperative banking reduces the use of trade credit at the local level. Evidence shows that lower levels of provincial banking development are linked with a stronger decline in trade credit at the start of the global financial crisis. We also find that SMEs in provinces with industrial districts use more trade credit. Our results confirm that local differences in banking development and the trade credit policy of SMEs within countries matter, adding to earlier findings that the provision of trade credit is complementary to the development of financial institutions at the country level.

PurposeThe objective of this study is to investigate the relationship between trade credit supply and financial distress outcomes, considering the role that trade credit plays as a substantial source of liquidity for distressed companies. Specifically, it examines whether there is an association between trade credit supply and the outcomes experienced by companies that undergo the voluntary administration (VA) insolvency procedure under Australian corporate law.Design/methodology/approachThe study examines a sample of companies that were listed on the Australian Securities Exchange and entered VA between 2002 and 2019. Ordered logistic regression is used to determine the relation between trade credit and VA outcomes. The VA outcomes considered are as follows: (1) company liquidation, (2) orderly dissolution through an agreement with creditors, or (3) an agreement with creditors for reorganization of all or part of the company's business.FindingsThe findings show that trade creditors' willingness to supply credit is influenced by their rational expectations about the future prospects of financially distressed customers. Higher levels of trade credit and an increase in trade credit supply prior to VA are associated with a greater probability of achieving a reorganization versus a liquidation or dissolution outcome.Originality/valueThere is no apparent prior study investigating the connection between trade credit supply and outcomes for distressed companies entering insolvency administration. Therefore, this study provides novel evidence on the role of trade credit in the context of financial distress. Understanding the relationship between trade credit supply and outcomes is particularly significant considering that many jurisdictions offer distressed companies the opportunity to pursue reorganization under their insolvency laws. Examining financial distress and trade credit in the Australian creditor-friendly context expands on existing research. Prior research has predominantly relied on data from the United States, which has debtor-friendly bankruptcy law. Consequently, these studies may lack generalizability to jurisdictions with creditor-friendly law such as Australia.

Customers’ blockchain adoption and suppliers’ provision of trade credit: A pre-registered report