The Impact of Offering Trade Credit on Firms' Profitability

Ala’a Adden Abuhommous

39 citations0/0 files storedJournal of Corporate Accounting & Finance

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Working Capital and Financial Performance Corporate Finance and Governance Supply Chain and Inventory Management

Abstract

The amount of accounts receivable represents a large portion of firms' investment. Thus, the aim of this article is to investigate the relationship between the investment in accounts receivable and firms' profitability. In addition, we investigate the impact of trade credit motives (commercial, operational, and financial) on the relationship between accounts receivable and profitability. The results show that firms can increase their profitability by investing in accounts receivable; this effect is greater in firms with a highly volatile demand. Furthermore, we find that firms that invest higher than the average firms in the industry are more profitable. © 2017 Wiley Periodicals, Inc.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1978Specification Tests in Econometrics 1963CORPORATE INCOME TAXES AND THE COST OF CAPITAL: A CORRECTION 1988Financing Constraints and Corporate Investment 1987Financing Constraints and Corporate Investment 1997Trade Credit: Theories and Evidence 1994Tobin's q, Corporate Diversification, and Firm Performance 2008Back to the Beginning: Persistence and the Cross‐Section of Corporate Capital Structure

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2022Working capital management and board diversity towards firm performances in Indonesia's LQ45 2020Trade credit and firm profitability: Empirical evidence from India 2021The financial and operational impacts of European SMEs’ use of trade credit as a substitute for bank credit 2021The Impact of Working Capital Management on the performance of Listed Firms: Evidence of an Emerging Economy 2021Trade Credit as a Determinant of Firm’s Financial Performance: Moderating Role of Bank Financing

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