TRADE CREDIT AS QUALITY SIGNAL: AN INTERNATIONAL COMPARISON

Peihwang Wei · Susan M. L. Zee

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Abstract

This paper tests the product quality theory of trade credit with 1993 year‐end data for Germany, Japan, United Kingdom, and United States. The results are inconsistent with the transaction and financing theories of trade credit, since the evidence indicates that firms with high sales relative to their assets and firms with larger sizes extend less credit. However, the quality theory of trade credit is not uniformly supported by the data. Moreover, the evidence suggests wide variations of trade credit policies across countries and industries.

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References

1987Trade Credit and Informational Asymmetry 1993Trade Credit, Quality Guarantees, and Product Marketability 1992Accounts Receivable Management Policy: Theory and Evidence 1974An Economic Model of Trade Credit 1993Product Risk, Asymmetric Information, and Trade Credit 1984A Pure Financial Explanation for Trade Credit 1987An Optimal Financial Response to Variable Demand 1990Were Japanese Stock Prices Too High?

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