Trade Credit Financing Research Articles

International competition laws and trade credit financing

Using a novel dataset of country-level competition laws across 34 countries, I examine and find a significant positive impact of competition laws on the access and provision of trade credit financing. A wide variety of robustness tests corroborate. In cross-sectional analysis, I find that the effect of competition laws on trade credit is stronger for financially constrained firms, and firms in countries with poorer institutional environments. My finding has important implications for both research and practice.

A sustainable ordering policies model with trade-credit for deteriorating items under the learning effect

The carbon emission from the wastage of deteriorating items is very harmful to the environment. In general, it is believed that every item in a lot size is of high quality but practically it may not be possible that all products are of excellent quality. The deteriorating items may have a high deterioration rate and deteriorate as time passes. They can be managed with the help of preservation technologies, but involving high cost. Furthermore, shortages arise due to the deterioration of commodities, consequently influencing the demand for the product. The objective of the study is to examine the impact of carbon emission and the pattern of demand due to a shortage of products on the retailer’s total profit with the passage of time. Also, trade credit policies play a vital role for buyers and sellers and consequently impact overall profitability. Considering the importance of these factors, we have proposed a profit maximization model which incorporates trade-credit financing policy, carbon emissions, and the learning effect. This study examines how the learning effects impact the deteriorating items when trade-credit financing takes place. Detailed sensitivity analysis and numerical examples are presented to analyse the impact of model parameters on profit function. The application, future work, and managerial insight have been presented in this proposed study.

Financing the capital-constrained farmer under random yield and investment information asymmetry: bank credit versus trade credit

PurposeFinancing the capital-constrained farmers to facilitate the production of agri-products is one of the greatest challenges facing the farming supply chain in the developing countries. In this study, we investigate the optimal financing scheme for the farming supply chain under random yield and investment information asymmetry environment to support rural economic development.Design/methodology/approachWe analyze a stylized model of farming supply chain where the capital-constrained farmer produces and sells agri-products through the agribusiness firm, and investigate the optimal financing scheme incorporating the investment information asymmetry and the challenge of yield uncertainty.FindingsThe results show that there is no one financing scheme equilibrium dominates for all situations, the financing scheme equilibrium is affected by the bank’s supervision cost to monitor the farmer’s moral hazard behavior, the variance of random yield and the farmer’s initial capital. The preference of the financing scheme for the agribusiness firm may be different from that for the farmer. The agribusiness firm might suffer from overfinancing problem under trade credit financing when the bank’s supervision cost is larger and the farmer’s own initial capital is lower; the higher variance of random yield will flare up the effect.Practical implicationsThis study sheds light on the choice of financing scheme under random yield and investment information asymmetry environment. This problem is particularly important for developing economies. Financing the capital-constrained farmers not only increases supplies of food and industrial raw materials, but also reduces poverty. The findings provide managerial implications for practitioners for how to leverage different financing scheme to support rural economic development.Originality/valueThis study develops new theoretical model for farming supply chain financing incorporating the challenge of yield uncertainty and investment information asymmetry, the two prominent factors that would impact the financial risk significantly. We analyze the equilibrium under both bank financing and trade credit financing schemes, and the results suggest that the financing scheme equilibrium is affected by the bank’s supervision cost to monitor the farmer’s moral hazard behavior, the variance of random yield and the farmer’s initial capital. The agribusiness firm might suffer from overfinancing problem under trade credit financing.

The tone of earnings communication conferences and trade credit financing of listed companies

Earnings communication conference serves as a key channel for information disclosure in China, providing incremental information to the capital market. Using data from Chinese A-share listed firms from 2007 to 2021, this research reveals that management's tone at the earnings communication conference significantly promotes trade credit financing. Mechanism tests suggest that management's tone facilitates trade credit financing by enhancing information transparency. Further analyses demonstrate that the aforementioned effect is more pronounced for firms facing higher market competition and supplier concentration while lower level of attention from analysts.

Review of the Impact of ESG Disclosure on Corporate Commercial Credit Financing

ESG is an extension of the concept of green investment, reflecting the concept of sustainable development of enterprises. In order to deeply understand the impact of ESG on corporate trade credit financing, this paper takes the existing research theories of ESG and corporate trade credit financing as an example to study the development background, application prospect, disclosure significance, and existing problems of ESG. At present, the literature on the impact of ESG performance on trade credit financing mainly focuses on three aspects: environment, society, and management. This paper first introduces the development background and application prospect of ESG, then combs the existing research theories related to ESG and corporate commercial credit financing, and finally comprehensively analyzes the significance and existing problems of ESG disclosure in order to help future related research. The results show that the study of ESG is helpful in comprehensively analyzing its potential role in corporate trade credit financing and the current challenges. It is suggested that the research on the relationship between ESG and corporate trade credit financing should be further strengthened in the future to better promote the sustainable development of enterprises and the stability of financial markets.

Do technology export regulations impact corporate trade credit financing? Evidence from China

Based on an exogenous shock—the 2008 revision of the Catalog of Technologies Prohibited and Restricted from Export in China—we use a difference-in-differences (DID) research design to examine the impact of technology export restrictions (TERs) on corporate trade credit financing. We document that TERs limit a firm's access to trade credit. Specifically, TERs reduce corporate trade credit by approximately 44 % compared with that of an average firm in the sample. Moreover, the negative impact is more pronounced for firms with high financial risk or high product risk. Additionally, our tests show that both upstream and downstream firms reduce their provision of trade credit to firms impacted by TERs. The results suggest that TERs add trade barriers between countries, resulting in restricted corporate trade credit financing.

Optimal ordering strategy for deteriorating items with maximum lifetime using trade credit financing under imprecise environments

In many business scenarios, a retailer is permitted specific credit period to pay back for the products bought earlier. This facility enables retailers to continue their business operations even when they are unable to raise funds or secure a business loan. To boost the market's demand, promotional effort is a very effective business strategy to the retailer for maximizing the profit. On the other hand, a sudden and significant rise in customer demand for an inventory leads to shortages. Moreover, inventory relevant unit cost coefficients become imprecise due to insufficient data, human error etc. Nowadays, neutrosophic set quantifies the impreciseness more realistically. Considering these facts, an imprecise EOQ model for deteriorating items with maximum lifetime is formulated under trade credit facility. In addition, this article allows shortages, which are linearly time-dependent partially back-logged. Here, the unit cost coefficients are expressed as single-valued trapezoidal neutrosophic numbers. Furthermore, particular models are derived under different environments - intuitionistic, fuzzy, and crisp. Step-by-step solution procedures are suggested for all models to obtain optimal solutions. Models are numerically illustrated with real-life data, and some sensitivity analyses are performed. Managerial insights demonstrate that depletion time always depends on demand. Again, the present study suggests to reduce demand by halting the promotional activities during the shortage period and choose products with a larger lifetime.

Channel and pricing strategies in a risk-averse dual-channel supply chain: portfolio trade credit financing and platform investment

ABSTRACT This paper considers a dual-channel supply chain where the supplier can distribute products through an online platform and a capital-constrained traditional offline retailer. The retailer needs to fund its business by a portfolio financing of trade credit and platform investment to enter the market. With the price-dependent market uncertain demand, the supplier faces choices among direct, traditional, and dual channels for product distribution. We use the CVaR criterion to formulate the retailer’s risk-averse behaviour. Then derive the optimal retail channel strategy in a Stackelberg game model where the platform leads by setting a revenue-sharing rate. Our results unveil a Pareto improvement region in revenue sharing rates within the portfolio financing scheme. As the slotting fee escalates, the supplier tends towards traditional channels. Conversely, with a modest slotting fee, a threshold emerges for the retailer’s risk aversion, delineating the optimal retail channel. High retailer risk aversion favours the dual channel, while lower aversion steers all members towards the direct channel. Theoretical findings are validated through numerical analysis.

Corporate social responsibility on trade credit financing capacity: Facilitation or inhibition?

Corporate social responsibility and trade credit financing are increasingly emphasized by investors and management. Using data from Chinese A-share private listed companies from 2010 to 2021, this paper finds that CSR practices significantly enhance trade credit financing capacity, with this effect being more pronounced in enterprises located in regions with favorable commercial credit environments and samples of firms with high-quality disclosure. Furthermore, we identify three potential mechanisms: improving internal control quality, reducing operational risk, and enhancing supplier relationship stability. The findings underscore the important role of CSR in improving corporate financing ability and provide valuable insights for management practices.

ESG Rating Divergence and Trade Credit Financing : Promotion or Inhibition ?

ESG plays a key role in promoting sustainable development strategies. Data integrators integrate ESG-related information of enterprises and provide measurable reference for investors. However, different ESG rating agencies have different rating results for the same enterprise, which brings trouble to users in evaluating company information and formulating relevant investment strategies. This paper takes 2009-2022 Shanghai and Shenzhen A-share listed companies as the research object, and examines the relationship between ESG rating divergence and trade credit financing from the perspective of supply chain financing. The study finds that ESG rating divergence significantly inhibits the trade credit financing of enterprises, which is mainly achieved by aggravating the divergence of analysts ' forecasts and increasing the business risks of enterprises. Heterogeneity analysis shows that ESG rating divergence have a more significant inhibitory effect on trade credit financing in enterprises with high supply chain discourse power, strong supply chain stability and weak development ability. The conclusions of this paper are helpful to understand the economic consequences of ESG rating divergence and enrich the research on the influencing factors of trade credit financing.

Inventory model having preservation technology with fix lifetime under two level trade credit policy

Supply-chain management involves moving storage supplies from origin to consumption, with manufacturers running production based on quadratic demand, distributors and retailers monitoring inventory. When a new product is released, demand often rises linearly and then declines dramatically when an alternative becomes available. Shortages are not allowed. Players' inventory will decrease at a rate of (1/(1+m-t)), where m is fixed lifetime, greater than the replenishment time. Deteriorating goods experience constant mass loss or usefulness, but preservation technology can help the damaged item to be consumed. Retailers with direct customer relationships can reduce stock spoilage through good warehouses. Manufacturers' storage systems have a higher deterioration rate. Two-tier trade credit financing is examined in this model. Distributors offer specific credit terms to stores, while manufacturers provide a grace period for invoicing. Distributors and retailers must pay interest on unsold inventories if invoices aren't settled on time. An integrated storage system reduces costs by minimizing costs through multiple shipments from manufacturers to distributors and retailers, and by adjusting replenishment times for each player. The resolution process is designed so that the supply chain operator gets the best possible decision. Therefore, results are authorized using mathematical examples for different scenarios. Management decisions are suggested.

Pricing and Financing Strategies of Dual-Channel Green Supply Chain with Risk Aversion and Consumer Preferences

Nowadays, considering the growing tendency of companies toward e-commerce as well as green production, dual-channel green supply chain management has become particularly important. This paper investigates pricing decisions within a dual-channel green supply chain framework while considering the capital constraints faced by risk-averse manufacturers. Simultaneously, the impact of the degree of risk aversion, consumer green preferences, and channel preferences on the optimal decision-making process of green supply chain members is analyzed. We address the issue of financial constraints faced by manufacturers through bank loans and trade credit financing and compare the two cases. Our findings illustrate that trade credit financing outperforms bank loan financing in the dual-channel green supply chain. Moreover, pricing decisions under different models are influenced by consumer preferences and risk aversion. Specifically, the greenness of the product, wholesale price, and sale price exhibit negative correlations with manufacturers’ risk aversion but positive correlations with consumer preferences.

Business Financing and Financial Performance of Small and Medium Enterprises in Turkana County, Kenya

The purpose of this study was to examine the effect of business financing on the financial performance of small and medium enterprises in Turkana County, Kenya. Specifically, the study: examined the effect of commercial loan financing on the financial performance of small and medium enterprises; established the effect of trade credit financing on the financial performance of small and medium enterprises in Turkana County. A descriptive survey research design was used. The study was anchored on the information asymmetry theory and the financial intermediation theory. The target population comprised 325 small and medium enterprises in Turkana County. Stratified random sampling was used to select 83 small and medium enterprises for the study. The study used questionnaires as survey instruments for data collection which were administered to group chairpersons/ managers. Analysis of data was done using descriptive and inferential statistics. The study findings revealed the existence of a statistically significant regression effect of independent variables on financial performance of Small and Medium Enterprises in Turkana County. The study employed the F-distribution (F = 32.980) in predicting the dependent variable which indicated that the model significantly predicted how the independent variables affected the dependent variable (Financial Performance of Small and Medium Enterprises in Turkana County) which indicated an overall statistically significant model with commercial loan financing 54.9%, (t~3.056) of financial performance; and trade credit financing 67.2% (t~4.381) of financial performance of small and medium enterprises in Turkana County, Kenya. The study further recommended on each of the variables for management and policy consideration in future decision-making processes. The findings were expected to be of great assistance to management of other businesses. The study was also expected to add to existing literature in the finance field. Keywords: Business Financing, Financial Performance, Commercial Loan Financing, Trade Credit Financing

Different type of pay later facility for green product with selling price dependent demand using grey wolf optimizer

The use of trade credit finance is becoming more widely acknowledged as a crucial approach to improving inventory system profitability. We review an inventory model with depending on permitted payment delays for which, if the retailer place an orders higher than or equal to a predefined quantity S1, then the supplier will provide a fully pay in later facility of ξ periods (i.e., there will be no charge of interest until ξ). On the other hand the retailer need to pay a partial amount of payment to the supplier if the order quantity is less than S1, and the remaining amount may be deferred for up to ξ periods. Main objective of this study is to investigate the inventory model with different situations under delayed payment facility. In addition, determining the product's demand also involves taking into account the item's greenness and selling price. We have also considered the fact that the cost of buying is influenced by the product's degree of greenness. We employ the meta heuristic algorithm Grey Wolf Optimizar (GWO) to assist us in solving the problem, and we compare the outcomes with the aid of a few other algorithms (Whale optimisation algorithm (WOA) and Artificial electric field algorithm (AEFA)). In the end, we resolve several numerical cases to support the model. The concavity of the desired function is graphically displayed using MATLAB software.

The Low-carbon city pilot policy and trade credit financing: Evidence from China

We leverage integrated data spanning from 2007 to 2020 and employ a time-varying Difference-in-Differences (DID) approach to examine the effects of the low-carbon city pilot (LCCP) policy on trade credit financing. Our findings highlight the implementation of the LCCP policy significantly enhances the accounts payable and notes payable of enterprise, and reveals that the LCCP policy contributes to the improvement of trade credit financing through technological innovation and signal effects. These findings align with Porter Hypothesis and bring invaluable insights for policymakers in developing countries, guiding their efforts to promote sustainable economic development through environmental regulation.

Supply chain risks and the cost of debt: Evidence from the COVID-19 pandemic

This study aims to examine the impact of supply chain risks on the cost of debt. Our analysis is based on a comprehensive dataset of corporate bond offerings of listed firms. We utilize input−output tables to construct the proxies for supply chain risks that capture trade credit financing risks. The results demonstrate that supply chain risks substantially raise the corporate cost of debt and that the effects are magnified during COVID-19. The effects are more pronounced for firms in industries that were hit by COVID-19 more severely, those with high supply chain concentration, state-owned enterprises, and firms in financial distress. Our results are robust to alternative measures of the cost of debt, supply chain risk, and alternative samples. Our study suggests that supply chain security and stability are crucial for ensuring the smooth operation of businesses and maintaining a stable economy.

Research on the Impact of New Asset Management Regulations on Trade Credit Financing

Financing has always been a difficulty for small and medium-sized enterprises (SMEs) and private enterprises in our country. After new asset management regulations were introduced, shadow banking has been inhibited and enterprises turned to trade credit financing. This paper uses the panel data of China’s A-share listed companies from 2013 to 2022 as a sample to explore the impact of new asset management regulations on trade credit financing of enterprises by DID model. The results show that the new regulation promotes the trade credit financing. Improving financing constraints is the way for the policy to influence trade credit financing. In areas where shadow banking is developed or companies with less collateral, the policy promote trade credit financing more vigorously. It is suggested that enterprises should strengthen communication with each other, and the government should guide commercial banks to establish a new loan evaluation system and correctly guide the healthy development of shadow banking.

Corporate ESG performance and trade credit financing: Moderating effect of life cycle

This study examines the influence of environmental, social, and governance (ESG) performance on corporate trade credit financing based on Chinese A-share listed companies' data from 2018 to 2022. The empirical results revealed that enterprises with better ESG performance receive more trade credit from suppliers. This study found that ESG performance has a significant effect on trade credit in customer industries, polluting industries, and enterprises with high supplier concentration and low government grants. The Mechanism analysis indicated that ESG performance minimizes information and agency risks, thereby affecting trade credit. Further examination indicated that a firm's degree of maturity weakens the beneficial influence of ESG performance on trade credit and that a substitution relationship exists between corporate maturity and ESG performance in trade credit financing.

Bankruptcy judicial reform and corporate trade credit financing

In this paper, we rely on an exogenous shock to examine the impact of bankruptcy judicial reform on firms' trade credit financing. We employ a staggered difference-in-differences design based on the introduction of bankruptcy courts in China and find that the implementation of bankruptcy judicial reform significantly reduces firms' trade credit financing. Mechanism tests reveal that improved judicial efficiency increases the risk perception of local firms, which discourages trade credit financing. Heterogeneity tests show that the above effect is more pronounced in firms with higher bankruptcy risks, firms with state ownership, and in regions where bankruptcy administrators have been established. Conversely, higher supplier concentration attenuates the inhibitory effect of bankruptcy judicial reform. Further analyses show that the reform mainly reduces firms' trade credit provided by customers and the trade credit with financial attributes. In addition, the reform lowers the sales of firms' suppliers but does not affect their earnings performance, while customers benefit from the reform as their earnings increase while sales do not change significantly. The findings of this paper shed light on the impact of bankruptcy judicial efficiency on corporate financing structure, and provide policy implications for promoting the construction of China's bankruptcy rule of law and preventing financial risks.

A Study on Trade Credit Financing:Evidence from Chinese A-share Listed Companies

Currently, China boasts the largest number of listed companies globally. Trade credit suppliers leverage insights into the future outlook of these entities, extending trade credit as a strategy to capitalize on profitable ventures. This study demonstrates that this informational advantage contributes substantially to the predictability of assessing investment returns. Focusing on A-share listed companies, those relying more on trade credit than on debt financing exhibit heightened potential for future sales growth and stock returns. The predictability of return associated with trade credit is particularly pronounced in firms characterized by a greater degree of information asymmetry. Consequently, this paper aims to investigate the factors influencing the utilization of trade credit and the correlation between its use and the future prospects of listed companies relying on this financial mechanism.