Trade Credit

We argue that stronger debt enforcement in bankruptcy can reduce indirect costs of financial distress: (i) by increasing the likelihood of restructuring outside bankruptcy and (ii) by improving the recovery rate of stakeholders, such as trade creditors, through explicit legal provisions. Consistent with these predictions, we find that when debt enforcement is stronger, financially distressed firms are less exposed to indirect distress costs in the form of reduced access to trade credit and forgone sales. We document these effects in a panel of firms from forty countries with heterogeneous debt enforcement characteristics and in differences-in-differences tests exploiting several recent bankruptcy reforms.

The aim of this study is to develop mathematical model for Weibull deterioration of items in inventory in declining market when the supplier offers his retailers a credit period to settle the accounts against the dues. The computational steps are explored for a retailer to determine the optimal purchase units which minimize the total inventory cost per time unit. The

In this paper we have developed an economic order quantity (EOQ) model with partially permissible delay in payments for defectives items, in which a supplier frequently offers its retailers a permissible delay linked to order quantity and the demand rate of the item, is assumed to be a function of both the selling price and credit period offered by retailer to his customer. The purpose of this paper is to maximize the retailer’s profit by determining the optimal cycle time and the optimal selling price. Finally, numerical example is presented to illustrate the theoretical results followed by the sensitivity of parameters on the optimal solution.

The paper analyses the financial structure of the private sector in the Czech Republic, Hungary and Poland and assesses its implications for the monetary transmission mechanism. The financial accounts of these countries provide a picture of a private sector which is predictably financially less mature than the EU average: the corporate sector relies significantly on non-market financial liabilities (such as

The petroleum sector in Kenyan is highly regulated by the government such that, the government sets all prices  for  most energy  products.  It  is  expected  that  the  increased  number  of  petroleum marketing  companies  over  time  is  as  a  result  of  good  returns  in  the  sector  but  there  opposite going by happenings in the market. The study’s main objective was to assess the effect trade credit finance on profitability of petroleum companies in Kenya. A positivist philosophy was adopted to enable testing of the study hypothesis. The study adopted cross-sectional survey design with criterion sampling being used to arrive at 35 firms’ between 2007-2016. Primary data was collected  by  use  of  Questionnaires along  with secondary  data. Descriptive statistics and Univariate tests (t-test and Pearson correlation) were carried out. The results indicated that share capital has a negative but insignificant effect on profitability at 5% level. This is based on the p-values corresponding to the coefficients equivalent to -0.174, hence the study failed to reject the hypothesis with 95% confidence level as during the period of study, use or lack of use of share capital finance doesn’t affect firm profitability. The study recommended the need to institute appropriate  regulatory  mechanisms  meant  to  cushion  investors  by  initiating  corporate  finance practices in the industry.

The financial crisis that began in August 2007 and intensified in the fall of 2008 pushed the global economy into its most severe recession since World War II. As 2009 drew to a close, there were signs that economic activity in many countries was rebounding, but the fragile state of many countries' financial systems and concerns about how governments and central banks will manage the exit strategies from the extraordinary measures taken to mitigate the worst effects of the crisis leave many open questions about the ultimate course of the recovery.

Objective: One of the short-term financing methods that have received less attention in domestic research is the use of trade credit in financing. In this study, the impacts of some financial variables in firms on the supply of and demand for trade credit have been examined.
Method: The research sample includes 147 companies listed in the Tehran Stock Exchange in the period 2007-2017. To estimate the proposed model, panel data method and control approach of the effects of years and industries have been used as static approach, and to take into account the dynamics of supply and demand for trade credit, the dynamic panel data method with generalized moment method (GMM) has been used as complementary tests.
Results: Findings showed that as firm's size and age increase, so does the supply and demand for trade credit. Also, it was shown that firm's liquidity inversely affects the supply and demand for trade credit. However, the results do not provide sufficient evidence on the significant impact of financial constraints on supply and demand for trade credit. The findings of the supplementary tests confirm the initial results of the study.
Conclusion: Identifying the factors influencing the trade credit can help to properly manage trade credit and make optimal use of it to improve risk management and increase firm value.

This study elaborates an inventory policy for perishable products where the products face exponential deterioration with time under the credit of trades. The demand rate is taken as a function of selling price and the delay in payment is permitted as per the order of quantity. Shortages are permitted and fully backlogged. The aim of the present study is to find the optimal ordering quantity of retailer and the optimal order cycle for optimizing the total profit. This study is also useful to find the optimal ordering scheme in the analysis of trade credit. A numerical example based on practical problems is presented which is helpful in the study of business decision making problems. A sensitivity analysis of the model is carried out for various parameters. The study concludes with a conclusion and an aspect at feasible future requirements.

This paper describes a comprehensive method to design, test and then implement a Payments for Ecosystem Services (PES) framework to combat the environmental consequences of extensive native vegetation clearance in Australia. Clearing of vegetation, primarily due to the expansion of farming areas, has often resulted in regional dryland and irrigation salinity. The market based approach adopted ? a groundwater recharge

Purpose–Proposes to investigate the current practices of credit risk management by the largest US-based financial institutions. Owing to the increasing variety in the types of counterparties and the ever-expanding variety in the forms of obligations, credit risk ...

Objective: Capital market imperfections make a linkage between the firms' leverage and its value. In other words, there is a level of leverage at which the entity achieves its maximum value. It is generally assumed that the actual leverage is close to the optimal (target) leverage and when firms deviate from the optimal leverage or their optimal leverage changes, the actual leverage ratio is rapidly approaching the optimal leverage. However, several factors such as financing frictions in the capital market, macroeconomic shocks, as well as financial constraints and agency costs slow down the adjustment speed. Among the theories related to firms' leverage (including trade-off, pecking order, agency and market timing theory), the concept of target (optimal) leverage has a key role in trade-off theory. According to trade-off theory, optimal leverage is achieved via balancing the tax shield of debts and bankruptcy costs, and if adjusting the leverage does not impose cost on a firm; the company will minimize any deviation from the target leverage rapidly. The dynamic version of trade-off theory highlights the role of adjustment costs in firms' financing decisions. In this version, if there is a deviation between the actual and the optimal leverage, firms balance the benefits and costs of adjustment. If the adjustment costs are high, the firm may not adjust the leverage. On the other hand, using trade credit is one of the ways to firms' short-term financing. This research investigates the effect of trade credit on firms' actual leverage adjustment speed to achieve the target (optimal) leverage. Methods: This research is applied. In terms of research purpose, it is analytical, quasiexperimental and correlational, and in terms of time dimension, it is retrospective and post-event. The research sample includes 143 firms listed in Tehran Stock Exchange (TSE) during the period 2005-2019. In order to determine the type of firms' leverage (over-leveraged or underleveraged), our static models are estimated using panel data approach and fixed effect modes. In addition, to test the research hypotheses, we use dynamic models using the difference

Abstract- Formal lending institutions including Commercial banks fail to satisfy financial needs of smallholders, mainly due to stringent lending terms and conditions. The general objective of this study was to assess the effect of informal finance on the performance of SMEs in Kiambu County. The specific objectives were; to establish the effect of financial Self-help groups on the performance of SMEs; to examine the effect of family and friends finance on the performance of SMEs; to determine the effect of trade credit on the performance of SMEs and lastly to establish the effect of Shylock financing on the performance of SMEs. The study employed descriptive research design. The population of the study was 7384 SMEs. A sample size of 95 was selected using random sampling. This study used primary data which was collected through use of a questionnaire. SPSS was used to produce frequencies, descriptive and inferential statistics which was used to derive conclusions and generalization...

In a series of pathbreaking articles, Sylla argues that successful economies experience "financial revolutions" before they undergo their periods of rapid growth. In turn, governments generate these revolutions by putting public finance in order, and thereby giving private investors the incentive to create banks and securities markets. In the U.S., suggests Sylla, Hamilton masterminded the revolution. Might Matsukata, he continues, have done the same in Japan? Consistent with much of Sylla's work, Japan did indeed experience a financial revolution in the late 19th century. Matsukata, however, did not mastermind the revolution in advance of private-sector demand. Instead, private investors created the financial infrastructure in response to demand from industrial firms. What is more, most firms (at least in the pivotal silk industry) raised the funds they needed through trade credit rather than securities markets or banks. In this environment, the financial revolution c...

Abstract: There are two fundamental puzzles about trade credit: why does it appear to be so expensive, and why do input suppliers engage in the business of lending money? This paper provides a simultaneous answer to both questions analysing the interaction between the financial and the industrial aspects of the supplier-customer relationship. It examines how, in a context of limited enforceability of contracts, suppliers may have a comparative advantage over banks in lending to their customers because they hold the extra threat of stopping the supply of intermediate goods. Suppliers may also act as liquidity providers, providing insurance against liquidity shocks that may endanger the survival of their customer relationships. The relatively high implicit interest rates of trade credit result from the existence of insurance and default premiums. Moreover, these premiums are amplified whenever suppliers face a relatively high cost of funds. These effects are discussed empirically on a...