Determinants of trade credit financing: a dynamic analysis comparing agri-food cooperatives and non-cooperatives

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
MCarmen Martínez-Victoria ◽  
Mariluz Maté-Sanchez-Val
Keyword(s):  
Trade Credit ◽  
Empirical Studies ◽  
Profit Maximization ◽  
Cash Flows ◽  
Partial Adjustment ◽  
Content Type ◽  
Accounts Receivable ◽  
Dynamic Panel Model ◽  
Credit Financing ◽  
General Method Of Moments

PurposeThe particular characteristics of agri-food cooperatives reduce their ability to access external financial resources. The purpose of this paper is to explore the factors influencing the agri-food cooperatives' trade credit operations by measuring their accounts receivable and comparing the results with agri-food investor-owned firms (IOFs).Design/methodology/approachThe authors apply a partial adjustment model (PAM) estimated using a dynamic panel model with a two-step general method of moments (GMM) estimator to a sample of 11,930 Spanish agri-food cooperatives and IOFs for the period 2011–2018.FindingsThe study concludes that cooperatives and IOFs have an accounts receivable target, which they attempt to achieve rapidly. Cooperatives tend to behave as IOFs do, but they present lower adjustment coefficients. This difference seems to be explained by the unique characteristics of cooperatives which set different economic and social goals, not just profit maximization as IOFs. The findings show differences between the financial and commercial purposes of the cooperatives and IOFs as a result of their internal management policies. Larger cooperatives with access to external financial sources, positive cash flows and operational necessities will grant trade credit.Originality/valueThis study gives interesting implications for cooperative managers and policymakers to help them to understand the strategies behind trade credit policies. Previous empirical studies on the agri-food sector are scarce and focus on IOFs without considering the role of trade credit in European cooperatives.

Optimal decisions and coordination strategy of a capital-constrained supply chain under customer return and supplier subsidy

2018 ◽  
Vol 13 (2) ◽  
pp. 278-301 ◽  
Author(s):  
Gongbing Bi ◽  
Ping Chen ◽  
Yalei Fei
Keyword(s):  
Supply Chain ◽  
Trade Credit ◽  
Stackelberg Game ◽  
Modeling Framework ◽  
Content Type ◽  
Initial Capital ◽  
Joint Operations ◽  
Fixed Proportion ◽  
Customer Returns ◽  
Credit Financing

Purpose The purpose of the paper is to explore impacts of financing and supplier subsidy on capital-constrained retailer and the value of returns subsidy contract under a situation where the retailer makes joint operations and finance decisions. Design/methodology/approach This paper considers a two-level supply chain, including a retailer and a supplier. Facing problems of capital constraints and even customer returns, the newsvendor-like retailer orders from a well-capitalized supplier. The supplier allows the retailer a delay in payment and provides a subsidy contract to alleviate its problems if it is profitable. Considering their difference of initial capital status, the retailer is assumed to be Follower of Stackelberg Game and the supplier is the Leader. Findings The supplier return subsidy contract has some merits for both of partners in the chain. And it does not coordinate the supply chain when the retailer has enough initial capital; however, when the retailer is capital constrained, it does. In addition, the retailer’s initial capital level significantly affects the supplier’s subsidy decision. Research limitations/implications Return rate is simplified to a fixed proportion of completed demand. In addition, trade credit is only financing source in this paper, and other types of financing methods, such as bank credit, can be taken too. Originality/value This paper first incorporates trade credit financing and customer returns into a modeling framework to investigate the capital-constrained retailer’s joint operations and finance decisions and the value of supplier’s subsidy contract.

Determinants of trade credit supply among the Ghanaian construction sector

2014 ◽  
Vol 4 (4) ◽  
pp. 368-383
Author(s):  
De-Graft Owusu-Manu ◽  
Gary D. Holt ◽  
David J. Edwards ◽  
Edward Badu
Keyword(s):  
Trade Credit ◽  
Principal Component ◽  
Cash Flows ◽  
Corporate Image ◽  
Primary Data ◽  
Principal Component Factor Analysis ◽  
Key Factors ◽  
Decision Criteria ◽  
Content Type ◽  
Asset Portfolio

Purpose – Trade credit (TC) provides access to capital for construction contractors globally and is an important source of finance in both developed and developing countries. The purpose of this paper is to explore key factors underpinning construction suppliers’ decisions to provide TC to Ghanaian construction firms. Design/methodology/approach – Primary data from a structured survey of 75 construction suppliers are analysed. Principal component (factor) analysis explores complex structures among suppliers’ decision-making variables. Findings – Underlying constructs of decision criteria exist among seven key factors: financial profile of the contractor; parties’ profit margins; asset portfolio and project particulars; TC quantum and repayment terms; age and experience of the contractor; contractor corporate image; and parties’ cash flows. Originality/value – This is a new decision criteria framework for suppliers and contractors, who utilise TC.

scholarly journals Coordinating contracts as an instrument of supply chain profit maximization under short-term financing necessity

2020 ◽  
Vol 13 ◽  
pp. 57-94
Author(s):  
Irina Berezinets ◽  
◽  
Tatyana Voronova ◽  
Nikolay Zenkevich ◽  
Natalia Nikolchenko ◽  
...  
Keyword(s):  
Supply Chain ◽  
Trade Credit ◽  
Wholesale Price ◽  
Profit Maximization ◽  
Revenue Sharing ◽  
Expected Profit ◽  
Short Term ◽  
Bank Financing ◽  
Revenue Sharing Contract ◽  
Credit Financing

In this paper the problem of the supply chain expected profit maximization under the assumption of the short-term financing necessity for one of the supply chain parties using a coordinating contract is considered. The solution is derived for a two-echelon supply chain under the assumption of product demand being distributed as uniformly. A revenue-sharing contract with bank financing and a modified revenue-sharing contract with trade credit financing are explored. It is stated that none of the studied contracts is coordinating, as they do not provide the supplier’s expected profit maximum. The conditional coordination of supply chain with a modified revenue-sharing contract with trade credit financing is considered if the supply chain and the retailer’s expected profit maximum are reached and the supplier’s expected profit is greater than in case of application of a modified wholesale price contract with trade credit financing and a revenue-sharing contract with bank financing. It is proved that it is beneficial for both supply chain parties and the problem of the supply chain expected profit maximization under the assumption of the short-term financing necessity for one of the supply chain parties can be solved using a modified revenue-sharing contract with trade credit financing.

Tax avoidance as earning game player in emerging economies: evidence from Pakistan

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jahanzeb Marwat ◽  
Suresh Kumar Oad Rajput ◽  
Sarfraz Ahmed Dakhan ◽  
Sonia Kumari ◽  
Muhammad Ilyas
Keyword(s):  
Stock Returns ◽  
Emerging Economies ◽  
Positive Impact ◽  
Empirical Studies ◽  
Tax Avoidance ◽  
Cash Flows ◽  
Least Square ◽  
Short Term ◽  
Content Type ◽  
The Impact

PurposeThe current study aims to achieve two targets. First, examine empirically that whether corporate managers use tax avoidance to influence short-term profitability? Second, investigate the impact of tax avoidance on the value of firms. The tax accounts provide the opportunity to influence temporary/permanent profitability but empirical studies overlooking this matter, particularly in emerging economies.Design/methodology/approachFirst, the authors identified unexpected fluctuations of tax avoidance and then examine whether it impacts the profitability signal and firms' value? The unbalanced panel data of 189 non-financial firms for the period 2000–2018 are used for empirical analysis. The estimation biases and results consistency are verified by using two different econometric models including generalized least square and two-stage least squareFindingsThe study identifies that managers manipulate the profitability signal through tax avoidance. Tax avoidance practices help in earning management and earning smoothing to avoid negative signals in the stock market. In line with the behavioral finance view, tax avoidance has a positive impact on current stock returns because investors focus on profitability without a detailed screening of cash flows.Originality/valueA limited number of studies investigate the use of tax avoidance for manipulation of the short-term earning signal. Identifying gaps and limitations in the literature, this study provides invaluable insights into tax avoidance and its association with the profitability and value of firms. The findings are important for investors, managers and policymakers in making portfolio decisions and corporate policies.

scholarly journals Why do firms invest in accounts receivable? An empirical investigation of the Malaysian manufacturing sector

2018 ◽  
Vol 8 (2) ◽  
pp. 166-184 ◽  
Author(s):  
Salima Yassia Paul ◽  
Cherif Guermat ◽  
Susela Devi
Keyword(s):  
Trade Credit ◽  
Manufacturing Sector ◽  
Manufacturing Firms ◽  
Sales Growth ◽  
Short Term ◽  
Policy Makers ◽  
Content Type ◽  
Accounts Receivable ◽  
Developed Economies ◽  
Gross Margins

Purpose The purpose of this paper is to investigate the factors that influence Malaysian manufacturing sector investment in accounts receivable (AR), an asset seen by many as one of the riskiest in any company’s balance sheet. Design/methodology/approach The authors test several theories, related to AR, using a cross-section of 262 listed manufacturing firms over a period of five years (2007-2011). Both fixed and random effect approaches are adopted to deal with potential heterogeneity across firms. Findings The results show that investment in AR in Malaysia are influenced by firm size, short-term finance, sales growth and collateral. Profit, liquidity and gross margins have no role in affecting the decision of trade credit granting to customers. The results are inconsistent with previous studies. Size and short-term finance have a negative, rather than positive, impact. Liquidity and gross margins have no, rather than positive, effect. While profit and sales growth are predicted to feature a U-shaped relationship with investment in AR, the former is insignificant while the latter is strictly increasing. The only factor found to be consistent with prior studies is collateral. Research limitations/implications The results have two principal implications. First, policy makers should not take a holistic view of the trade credit market. Given that policy makers aim to improve liquidity and trade, they should design policies that are not only country specific but also sector specific. As is clear from our results, what holds for other countries or sectors may not necessarily be true for the Malaysian manufacturing sector. This has important implications for policy makers in emerging economies. Practical implications Investment in AR, in the Malaysian manufacturing sector, is impacted by many of the factors implied by either theory or empirical evidence. However, the main finding in this paper is that the Malaysian manufacturing sector is rather different. First, while liquidity and gross margin have been found to have a positive and significant effect on AR helping hand theory in prior studies, the results show that these two factors play no role in influencing the level of AR in the Malaysian manufacturing sector. Social implications Unlike the experience in developed economies, firms in our sample that have access to short-term finance are less likely to grant trade credit. This suggests that the helping hand theory does not hold as far as the Malaysian manufacturing firms are concerned: firm that have better access to short-term finance in Malaysia do not use trade credit to pass on the benefit to their customers by granting them trade credit. Originality/value It is unclear why firms invest in AR given the high risks of uncollectability as well as tedious, time-consuming and costly legal process for debt recovery compared to firms from more developed economies. This paper examines the reasons business-to-business lending, through AR, is widespread in Malaysia and investigates the factors that affect this decision despite the risk involved. To our knowledge, this is the first study to date that looks at the factors that influence AR level in the Malaysian manufacturing sector.

scholarly journals Operational risk in current assets investment decisions: Portfolio management approach in accounts receivable

2008 ◽  
Vol 54 (No. 1) ◽  
pp. 12-19 ◽  
Author(s):  
G. Michalski
Keyword(s):  
Portfolio Management ◽  
Asset Management ◽  
Financial Management ◽  
Firm Value ◽  
Trade Credit ◽  
Profit Maximization ◽  
Potential Effect ◽  
Management Approach ◽  
Accounts Receivable ◽  
Enterprise Value

The basic financial purpose of an enterprise is maximization of its value. Trade credit management should also contribute to the realization of this fundamental aim. Many of the current asset management models that are found in the financial management literature assume book profit maximization as the basic financial purpose. These book profit-based models could be lacking in what relates to another aim (i.e., maximization of the enterprise value). The enterprise value maximization strategy is executed with a focus on risk and uncertainty. This article presents the consequences that can result from operating risk that is related to purchasers using payment postponement for goods and/or services. The present article offers a method that uses the portfolio management theory to determine the level of accounts receivable in a firm. An increase in the level of accounts receivables in a firm increases both net working capital and the costs of holding and managing accounts receivables. Both of these decrease the value of the firm, but a liberal policy in accounts receivable coupled with the portfolio management approach could increase the value. Efforts to assign ways to manage these risks were also undertaken; among them, a special attention was paid to adapting the assumptions from the portfolio theory as well as gauging the potential effect on the firm value.

Valuations of electricity distribution and retail companies in an emerging market

2017 ◽  
Vol 11 (2) ◽  
pp. 329-349
Author(s):  
Hasan Alma ◽  
Mehmet Baha Karan
Keyword(s):  
Emerging Market ◽  
Empirical Studies ◽  
Cash Flows ◽  
Electricity Distribution ◽  
Main Hypothesis ◽  
Market Prices ◽  
Content Type ◽  
Distribution Company ◽  
Energy Companies ◽  
Extreme Scenario

Purpose This paper is aimed to evaluate recently privatized 18 electricity distribution and retail companies, using the data and conditions at the time they were privatized. The main hypothesis of the study is that most of the privatized companies in this research are underpriced similar to previous experiences in developed and emerging economies. Design/methodology/approach Values of the companies are calculated considering the formal procedures of Turkish energy authorities. These companies are valued under the base, moderate and extreme scenarios created from different sets of assumptions considering conditions and existing data at the time they were privatized. Discounted cash flows (DCF) methodology is used in the estimations. The market prices obtained in their privatization tenders are compared with those theoretically calculated values (intrinsic prices). Findings The findings reject the hypothesis and indicate an overpricing in general in the privatizations of Turkey. Even the extreme scenario which gives the highest intrinsic values supports the findings. Research limitations/implications Research is limited with 18 regional electricity distribution company in Turkey. Originality/value The paper is one of the initial empirical studies on the valuation of energy companies using DCF methodology in an emerging market.

scholarly journals Portfolio management approach in trade credit decision making

2007 ◽  
Vol 59 (4) ◽  
pp. 546-559 ◽  
Author(s):  
Grzegorz Michalski
Keyword(s):  
Portfolio Management ◽  
Asset Management ◽  
Financial Management ◽  
Trade Credit ◽  
Profit Maximization ◽  
Management Approach ◽  
Accounts Receivable ◽  
Enterprise Value ◽  
Value Maximization ◽  
Current Asset

The basic financial purpose of an enterprise is maximization of its value Trade credit management should also contribute to realization of this fundamental aim. Many of the current asset management models that are found in financial management literature assume book profit maximization as the basic financial purpose. These book profit-based models could be lacking in what relates to maximization of enterprise value. The enterprise value maximization strategy is executed with a focus on risk and uncertainty. This article presents the consequences that can result from operating risk that is related to purchasers using payment postponement for goods and/or services. The present article offers a method that uses portfolio management theory to determine the level of accounts receivable in a firm.

Inelastic sports ticket pricing, marginal win revenue, and firm pricing strategy

2016 ◽  
Vol 42 (9) ◽  
pp. 922-927 ◽  
Author(s):  
Yang-Ming Chang ◽  
Joel M. Potter ◽  
Shane Sanders
Keyword(s):  
Demand Curve ◽  
Empirical Studies ◽  
Profit Maximization ◽  
Maximization Problem ◽  
Standard Result ◽  
Content Type ◽  
Ticket Pricing ◽  
Crowd Density ◽  
Sports Team ◽  
Profit Maximizing

Purpose A standard result of firm theory is that a monopoly maximizes profit somewhere along the elastic portion of its demand curve. However, empirical studies of sports ticket pricing routinely find that (home) teams price along the inelastic portion of demand. Despite compelling theoretical explanations of this finding, at least one important factor remains unconsidered. A profit-maximizing team considers not only direct marginal revenue and direct marginal cost when setting a ticket price but also deferred, strategic benefit (revenue) from present game success. The paper aims to discuss these issues. Design/methodology/approach Prior literature finds that a given win is valued in that it generates additional future revenue and likelihood of home victory rises, ceteris paribus, in crowd density. The authors construct a firm profit maximization problem in which a sports team considers both present and future revenue when pricing home games in the present period. Findings If the deferred benefit is sufficiently large, a forward-looking, profit-maximizing team prices along the inelastic portion of its static demand curve. Importantly, this same price falls along the elastic portion of the firm’s (empirically unobserved) dynamic demand curve. Originality/value This is the first model of sports ticket pricing to recognize the intertemporal nature of demand for a sports match.

The impact of credit supply on sales growth: Swedish evidence

2015 ◽  
Vol 11 (3) ◽  
pp. 329-340 ◽  
Author(s):  
Darush Yazdanfar ◽  
Peter Öhman
Keyword(s):  
Firm Growth ◽  
Trade Credit ◽  
Least Square ◽  
Set Covering ◽  
Sales Growth ◽  
Data Set ◽  
Content Type ◽  
Accounts Receivable ◽  
Credit Supply ◽  
The Impact

Purpose – The purpose of this paper is to empirically investigate the impact of credit supply on sales growth among small- and medium-sized enterprises (SMEs). Design/methodology/approach – The three-stage least square (3SLS) method was used to analyse a cross-sectional panel data set covering 13,548 Swedish SMEs across four industry sectors from 2009 to 2012. Findings – The study provides empirical evidence that trade credit in terms of accounts receivable significantly and positively affects sales growth, indicating that SMEs investing more in accounts receivable are more likely to achieve growth. Furthermore, lagged sales growth and firm size are positively, while firm age is negatively, related to growth. Practical implications – Managers can increase firm growth by efficiently managing the supply of credit to their customers, especially liquidity-constrained firms, thereby increasing sales growth. Originality/value – To the authors’ best knowledge, this is one of the first empirical studies of the impact of credit supply in terms of accounts receivable on sales growth. The study applies the 3SLS method to a comprehensive cross-sectoral sample.

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