Effects of financial distress and financing constraints on trade credit provisions

Igbekele Sunday Osinubi

18 citations0/0 files storedAsian Review of Accounting

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Working Capital and Financial Performance Corporate Finance and Governance Financial Distress and Bankruptcy Prediction

Abstract

Purpose Existing studies that documented the effect of financial distress on trade credit provisions did not include measures financial constraint. It is possible that financial distress is tie to financial constraints, and both financial distress and financial constraints mutually reinforce each other in their effects on trade credit provision. The purpose of this study is to evaluate the effects of financial constraint and financial distress on trade credit provisions in the UK FTSE 350 listed firms. Design/methodology/approach This study employs panel data in the estimation of the determinants of accounts payables and accounts receivables of the UK FTSE 350 firms from 2009 to 2017. Findings This study finds that financial distress has significant positive effect on accounts payables and a significant negative effect on accounts receivables. Financial constraints have significant negative effect on accounts payables and a significant positive effect on accounts receivables. Practical implications Trade creditor desiring to maintain an enduring product-market relationship grant more concessions to customer in financial distress. The amount of trade credit that sellers provide to financially constrained firm is an increasing function of the buyer's creditworthiness. The urgent cash needs of financially distressed firms lead them to sell trade receivables to factoring company leading to reduction in trade receivables. Firm facing external financing constraints increase trade credit to customers in anticipation of cash flow inflow to enhance liquidity. Originality/value This study shows that financial distress and financial constraints mutually reinforce each other in their effects on trade credit provisions, and firm's financing condition contributes to divergence in trade credit policies.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 18 citations exist upstream.

References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1998Initial conditions and moment restrictions in dynamic panel data models 1995Initial conditions and moment restrictions in dynamic panel data models 1997Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?2010New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index 1994The Benefits of Lending Relationships: Evidence from Small Business Data 1995The Effect of Credit Market Competition on Lending Relationships 1993Risk Management: Coordinating Corporate Investment and Financing Policies

Cited by

2022The Effect of Implementing Good Corporate Governance on the Profitability and Financing Risk of Sharia Commercial Banks

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.