The Use of Trade Credit by Public and Private Firms: An Empirical Investigation

Abstract

We show that public firms use significantly less trade credit than private firms. The impact of listing status on the use of trade credit is more pronounced in young, high-growth, low-tangibility, and high-volatility firms, which is consistent with the argument that private firms with greater asymmetric information and credit constraints rely more on supplier financing. Public and private firms seek to adjust toward optimal trade credit levels, although public firms experience faster adjustment. During the recent financial crisis, public firms on average exhibited no significant change in their trade credit ratios, while private firms were granted significantly less trade credit.