Trade credit: a real option for bootstrapping small firms

Abstract

This study uses a real options framework to predict small firm bootstrapping behavior with regard to trade credit discounts. Findings from a sample of 606 small firms suggest their managers place high value on the ability to adjust their decisions over time in response to firm-specific changes in (1) the uncertainty they face; and (2) the irreversibility of their decisions. The insights provided by this study can help scholars and small firm managers better understand how trade discount strategies should be analyzed with respect to other sources of bootstrap and long-term capital.

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