Trade credit and corporate growth
Trade credit and corporate growth
While the underlying causal linkage between trade credit and corporate growth has mainly been explored, the primary factors that channel the relationship are limited. This article hypothesises a nonlinear relationship between trade credit and corporate growth due to the existing theoretical arguments on the benefit and cost of using suppliers' credit by corporations to enhance growth. Based on a panel of 23,023 non-financial companies from the United Kingdom over a 10-year period, evidence from this study reveals a nonlinear (concave) relation between trade credit and corporate growth: positive for low trade credit received and negative for high credit received. We also find trade credit to be sensitive to financial crisis, financial constraints and growth strategy. The predictability is stronger during a financial crisis, among financially constrained corporations and corporations pursuing an aggressive growth strategy. We also find growth to be higher in firms that move closer to achieving an optimal credit level. This relationship holds for both the above- and below-optimal deviations. These findings have implications for a more balanced and nuanced view of trade credit management.
Employment growth, Trade payables, financial constraint, financial crisis and corporate growth, monetary contraction, trade credit
Tingbani, Ishmael
e6b2741a-d792-4adf-84cc-a2f64d5545ca
Afrifa, Godfred Adjappong
ac714aad-7d0a-4a2a-bcfc-d09358b40b47
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
19 August 2022
Tingbani, Ishmael
e6b2741a-d792-4adf-84cc-a2f64d5545ca
Afrifa, Godfred Adjappong
ac714aad-7d0a-4a2a-bcfc-d09358b40b47
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Tingbani, Ishmael, Afrifa, Godfred Adjappong, Tauringana, Venancio and Ntim, Collins
(2022)
Trade credit and corporate growth.
International Journal of Finance & Economics.
(doi:10.1002/ijfe.2683).
Abstract
While the underlying causal linkage between trade credit and corporate growth has mainly been explored, the primary factors that channel the relationship are limited. This article hypothesises a nonlinear relationship between trade credit and corporate growth due to the existing theoretical arguments on the benefit and cost of using suppliers' credit by corporations to enhance growth. Based on a panel of 23,023 non-financial companies from the United Kingdom over a 10-year period, evidence from this study reveals a nonlinear (concave) relation between trade credit and corporate growth: positive for low trade credit received and negative for high credit received. We also find trade credit to be sensitive to financial crisis, financial constraints and growth strategy. The predictability is stronger during a financial crisis, among financially constrained corporations and corporations pursuing an aggressive growth strategy. We also find growth to be higher in firms that move closer to achieving an optimal credit level. This relationship holds for both the above- and below-optimal deviations. These findings have implications for a more balanced and nuanced view of trade credit management.
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Accepted/In Press date: 14 July 2022
e-pub ahead of print date: 8 August 2022
Published date: 19 August 2022
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© 2022 The Authors. International Journal of Finance & Economics published by John Wiley & Sons Ltd.
Keywords:
Employment growth, Trade payables, financial constraint, financial crisis and corporate growth, monetary contraction, trade credit
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Local EPrints ID: 468549
URI: http://eprints.soton.ac.uk/id/eprint/468549
ISSN: 1076-9307
PURE UUID: 453ac1db-34bd-4690-a010-651e7ac3b3be
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Date deposited: 17 Aug 2022 17:20
Last modified: 17 Mar 2024 04:02
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Author:
Godfred Adjappong Afrifa
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