Shareholder Returns from Supplying Trade Credit

Authors

Matthew D. Hill, University of MississippiFollow
G. Wayne Kelly, University of Southern MississippiFollow
G. Brandon Lockhart, University of Nebraska-LincolnFollow

Date of this Version

Spring 2012

Citation

Financial Management 41:1 (Spring 2012), pp. 255–280; doi: 10.111 /j.1755-053X.2012.01198.x

Comments

Copyright © 2012 Financial Management Association International. Published by John Wiley & Sons Inc. Used by permission.

Abstract

We examine shareholder wealth implications of supplying financing to customers. Robust results demonstrate that excess returns and trade receivables are directly and significantly related. Further evidence indicates the value of receivables is higher for suppliers with stronger motives relating to operating and contracting costs. The results also suggest a discounted value of receivables for financially unconstrained firms. Overall, we conclude that investors recognize trade credit as an effective instrument in mitigating frictions hindering sales growth. Thus, certain suppliers are positioned to derive increased strategic benefits from credit policy.