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