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Downstream Value of Upstream Finance
Author(s) -
Hill Matthew D.,
Kelly G. Wayne,
Lockhart G. Brandon
Publication year - 2013
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12021
Subject(s) - trade credit , business , market liquidity , value (mathematics) , finance , downstream (manufacturing) , upstream (networking) , database transaction , enterprise value , monetary economics , financial system , economics , computer network , marketing , machine learning , computer science , programming language
We examine market value implications of managing liquidity via supplier financing. Results suggest a direct link between shareholder wealth and use of trade credit, and the relation exhibits significant cross‐sectional variation. In particular, the market value of trade credit varies with the liquidity of goods sold and competition in product markets. Evidence also indicates the value‐supplier financing association strengthens with financial constraint, which supports the financing motive for trade credit. Further findings are consistent with the transaction cost motive. Overall, we conclude that shareholders value the strategic benefits associated with supplier financing and that downstream firms’ characteristics influence this value.