Narrow Results

This study analyzes the financing strategy of a two-echelon supply chain, consisting of a manufacturer and a retailer, both subject to capital constraints. Specifically, the bank provides loans to the manufacturer, who then grants trade credit to the retailer. Based on the three-party game analysis framework of the bank, manufacturer, and retailer, this paper constructs a supply chain financing model under the information symmetry and information asymmetry structures, respectively; measures the maximum financing ability of the manufacturer; and discusses the influence of trade credit, moral hazard, and information structure on the manufacturer’s and bank’s strategies. The results show that under the trade credit situation, it is critical for the bank to provide loan to manufacturer who does not have moral hazard. The maximum financing capacity of the manufacturer is affected by the rate of return on moral hazard and the intensity of trade credit default. The increase of trade credit default intensity and risk exposure will lead to the increase of the interest rate of bank loan, and in the case of information asymmetry, the bank will often ask for a higher interest rate to deal with the information disadvantage. The strategy for the bank to make the credit line is more complex, and the degree of information asymmetry plays a positive moderating effect on the influence of trade credit on the credit line. Our findings provide implications for participants who implement financing actions to improve their financial performance and control the moral hazard and default risk along a supply chain.

Examining the mean reversion behavior and the adjustment speed of trade receivables of nonfinancial listed firms in Vietnam from 2010 to 2022, this is the first study to investigate whether firms feature a tendency to move toward target trade credit level, and how COVID-19 influences trade credit supply in a dynamic setting in a developing market. The research results suggest that firms do have a target trade receivables level and the speed of adjustment toward this target level is quite significant. Further, we show that firms demonstrate a faster adjustment speed toward target trade credit receivables during the COVID-19 pandemic. We show that lower profitability and higher allowance for bad trade receivables can positively affect the adjustment speed. As the COVID-19 pandemic tends to affect profitability and the level of bad trade receivables, we consider these factors as channels that explain why firms tend to adjust faster toward their target trade credit during the pandemic. The study offers implications for achieving sustainable development and improving business performance.

A three-layer supply chain model with a single supplier, manufacturer, and retailer is presented in this paper. This proposed model is analyzed under green investment along with trade credit and cap-trade policy. It is considered that the manufacturer’s production process is imperfect. Few inferior quality products are reworked, and the remaining defective items are discarded. The manufacturer makes investments in green technology to reduce carbon emissions. The product’s demand is influenced by selling price, advertisement, and green-technology level. The total average profit of the supply chain is constructed under three different scenarios of trade credit provided by the manufacturer to the retailer. The primary goal of this research is to obtain the optimal selling price, production rate, and green-technology level to maximize the system’s total average profit by using genetic algorithm. A numerical example is shown to demonstrate the model, and sensitivity analysis is carried out to analyze the impact of numerous input parameters. Managerial insights and conclusions are provided to make this model helpful for manufacturers.

The case for stabilizing China's exchange rate against the dollar is strong. Before 2005 when the yuan/dollar rate was credibly fixed, it helped anchor China's domestic price level. But gradual RMB appreciation from July 2005 to July 2008 created a "one-way-bet" that disordered China's financial markets in two respects: (i) no private capital outflows to finance China's huge trade surplus leading to an undue build up of official exchange reserves and erosion of monetary control, and (ii) a breakdown of the forward exchange market in 2007–2008 so that exporters could no longer get trade credit — probably worsening the severe slump in Chinese exports. But after July 2008, the credit crunch induced an unexpected unwinding of the dollar carry trade leading to a sharp appreciation in the dollar's effective exchange rate. The People's Bank of China (PBC) then stopped RMB appreciation against the dollar. China's forward exchange market was restored and monetary control regained. Now the PBC can better support the fiscal stimulus by promoting a parallel expansion of bank credit. But, since March 2009, the fall in the dollar (with the RMB tied to it) again threatens to undermine the yuan/dollar rate and China's monetary stability.

This paper presents a stylized model to determine the optimal strategy for the integrated supplier-retailer inventory model under the condition that both the supplier and retailer have adopted a trade credit strategy. By analyzing the total channel profit function, we develop an algorithm to simultaneously determine the retailer's optimal order quantity and the number of shipment per production run from the supplier to the retailer. Our results demonstrate that the trade credit strategy is effective to supply chain system performance when customers are sensitive to the credit period length offered by the retailer. Moreover, when customers are sensitive to the credit period, if the retailer conveys partial advantage gained from the trade credit offered by the supplier to customers by suitably adjusting the customer's credit period then the entire system and every channel partner can benefit.

This study examines trade credit strategy in a supply chain framework including one manufacturer and two competitive retailers under a Cournot game setting. We consider three supply chain models depending on how many retailers have capital constraints: (i) Model NN (i.e., none of the retailers has capital constraints); (ii) model AN (i.e., a single retailer has capital constraint); and (iii) model AA (i.e., dual retailers have capital constraints). We analyze equilibrium strategies of supply chain under three models, and show that the manufacturer sets a higher price for a capital-constrained retailer than that for a fund-abundant retailer. Notably, the fund-abundant retailer’s wholesale price is not dependent on its rival’s capital status. Certain numerical experiments have been performed to show the impact of retailer’s competition, market disturbance, and production cost on trade credit financing strategy. Findings reveal that by increasing the horizontal competition intensity, the capital-constrained retailer benefits more from trade credit. With a higher market disturbance or a higher production cost, the manufacturer is more willing to offer trade credit to capital-constrained retailers.

This paper examines the impact of trade credit on the speed of capital structure adjustment toward target leverage using an integrated dynamic partial adjustment model. Trade credit is an important substitute for debt financing and gives firms a low-cost means of adjusting leverage toward the target capital structure in China. We measure trade credit by accounts payable. Using the public listed company data from 1998 to 2016, we find that trade credit accelerates capital structure adjustment. The asymmetric impacts on the capital structure adjustment speed in different situations are also evidenced. The positive impact of trade credit on the speed of capital structure adjustment is more pronounced for over-levered firms. The trade credit also accelerates the speed of capital structure adjustment more quickly for high market share firms. Our results imply that firms use trade credit to save cash flow and restore the leverage level to the target capital structure in China.

Firms with higher book equity relative to market capitalization earn a premium, leading to sorting into value and growth. This sorting implies that any balance sheet additions are risky. This paper provides evidence that what a firm holds on its balance sheet matters, and value occurs with high book-to-market ratios. Each holding relative to firm market capitalization has a risk premium, varying across holdings. Among US firms quarterly for 1980–2016, doubling holdings of cash and receivables relative to market capitalization earn premiums of at least 1%, as does taking on debt. These account for the entire value premium, since physicals, intangibles and payables are not risky. The value premium derives from the composition of the firm’s assets.

Capital constraints in the supply chain have linked trade credit to the banks’ credit risk exposure. This paper focuses on how trade credit, which is widespread in the supply chain, affects the banks’ risk exposure by constructing a two-echelon Stackelberg framework in a case involving supplier dominance. A numerical analysis illustrates the following: First, the contagion intensity, which measures trade credit’s impact on the banks’ risk exposure, positively relates to the uncertainty of demand. Second, the retailer’s characteristics have a significant, moderating effect on this positive relationship between the banks’ risk exposure and the uncertainty demand. Finally, suppliers can reduce the contagion intensity by screening different types of retailers, which consequently decreases the banks’ risk exposure.

The research problem

We examine the association between financial reporting quality and trade credit capital for a large sample of European private firms. Furthermore, we explore how information asymmetry and credit rationing moderate the link between financial reporting quality and trade credit financing.

Motivation

Trade credit constitutes one of the most important sources of financing for private firms. Nevertheless, prior research has provided few and inconclusive evidence of the link between financial reporting quality and private firms’ trade credit capital. Our study is further motivated by the recent calls for more research on the determinants of the relation between financial reporting quality and trade credit financing (e.g., Hope & Vyas (2017)).

The test hypotheses

H₁: There is a positive association between financial reporting quality and private firms’ access to trade credit capital.

H_2a: The relation between financial reporting quality and private firms’ access to trade credit capital is more positive when information asymmetry and uncertainty about future cash flows are high.

H_2b: The relation between financial reporting quality and private firms’ access to trade credit capital is more positive when credit is rationed.

Target population

Policymakers who seek to improve accounting standards and customize them to the financial reporting needs of private firms and their stakeholders (e.g., international financial reporting standards for small and medium-sized enterprises), private firm managers, and private firm suppliers.

Adopted methodology

Ordinary Least Squares regression analyses.

Analyses

We examine the association between financial reporting quality and trade credit financing for a large sample of private firms from Europe’s five largest economies, i.e., France, Germany, Italy, Spain, and the United Kingdom. Our sample period spans from 2010 to 2016. We use the Amadeus database as our source of data. We regress trade credit capital on three proxies for financial reporting quality. In cross-sectional analyses, we repeat our main estimations by interacting our proxies for financial reporting quality with proxies for information asymmetry and credit rationing.

Findings

We find strong evidence that high-quality financial reporting is associated with more trade credit financing in private firms. We further show that the positive relation between high-quality financial reporting and trade credit is stronger when information asymmetry and uncertainty about future cash flows is high as well as when credit is rationed. These findings suggest that suppliers complement insider communication channels and financial reporting quality and provide a more nuanced understanding of the interplay among information asymmetry, credit rationing, and trade credit financing.

The economic consequences of frequent weather events at the firm level have received considerable attention in recent years. This study empirically investigates the impact of climate change risk on firms’ trade credit, using Chinese-listed firms as research subjects. The results suggested that climate change risk has a negative impact on corporate trade credit by deepening firms’ financial distress and lowering the level of industry competitiveness. Both digital transformation and government transparency were found to have a significant negative moderating effect. Heterogeneity analyses showed that firms without environmental background executives, nonstate-owned firms, and nongreen firms were more significantly affected. Finally, we found that the green, low-carbon city pilot policy had a benign effect on corporate trade credit.

We investigate whether and how SMEs’ credit quality influences their substitution of bank credit for trade credit. Using data from the five largest European countries, we find that substitution of bank credit for trade credit decreases during the financial crisis, but it decreases significantly less for ex ante low credit quality firms. We control for pre-crisis or lagged firm characteristics including size and external finance dependence, industry effects, sample selection effects and cross-country heterogeneity. We also find that low credit quality firms increase their absolute and relative trade credit usage significantly more than high credit quality firms during the financial crisis. The effects are consistent across countries and stronger for net trade credit borrowers and financially constrained firms. The evidence highlights how credit quality influences demand-side driven substitution in SME finance.

This study has attempted to calculate the actual cost of the fund of SMEs by considering the fund from institutional and non-institutional sources. For this study, some financial tools, techniques, two samples mean comparison test and ANOVA test have been used to analyze the cross-sectional primary data. The study has found that the average actual cost of the fund from institutional sources, non-institutional sources (without trade credit) and trade credit are 15.52%, 32.11% and 40%, respectively. The cost of the external financing of small enterprises is higher than the medium enterprises and this cost in manufacturing sectors is higher than the service/trade sectors. Again, this cost in rural region is higher than the urban region but it is not statistically significant. The average cost of external financing of SMEs is about 29% which is really high to conduct a business properly.

When firms increase the size of their net balance sheet, they earn a higher return as value. Value is earned from different holdings. An examination of holdings compares which earn value. Holdings of US traded firms are divided into categories from their balance sheet. As reported on the asset side are cash, receivables, physicals, and intangibles. On the liability side, in order are payables, short- and long-term debt. In value, the sum of book equity is divided by market capitalization. For individual value, each is divided by market capitalization. Then, the return is regressed on the individual values and their interactions. Negative value is when increasing a holding reduces the return. Positive value comes from return increasing with a holding. The rank order of contributors to value, for US firms over 1980–2016, is

Replacing holdings by their risk-weight adjustments and adding up, the resulting book to market has no effect on returns. Returns are fully priced by firms’ balance sheet holdings. The results potentially explain why value or overall book to market fails to outperform growth. Value is a return to holding certain risky holdings. Not all balance sheet holdings are risky.