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Trade credit and cost stickiness
Author(s) -
Costa Mabel D.,
Habib Ahsan
Publication year - 2021
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12606
Subject(s) - agency (philosophy) , competition (biology) , trade credit , sample (material) , agency cost , business , relation (database) , product (mathematics) , industrial organization , market competition , economics , monetary economics , microeconomics , finance , market economy , ecology , corporate governance , philosophy , chemistry , geometry , mathematics , epistemology , chromatography , database , computer science , biology , shareholder
Abstract Using a large sample of US data, we examine the relation between trade credit and cost behaviour and further investigate the moderating effects on this relation of agency problem, product market competition, and customer concentration. We find that firms using high levels of trade credit exhibit lower cost stickiness and this is prevalent in the high agency problem sub‐sample. In addition, in a non‐competitive market, where the agency problem arises owing to lack of competition, trade credit plays an external monitoring role by attenuating cost stickiness. However, high customer concentration curtails this monitoring ability.