Department of Finance


Date of this Version

Spring 2012


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


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


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.