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ON THE DIMINISHING RETURN TO TRADE CREDIT
Author(s) -
Hill Matthew D.,
Kelly G.W.,
Venkiteshwaran Vinod
Publication year - 2015
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12061
Subject(s) - trade credit , economics , constraint (computer aided design) , monetary economics , credit crunch , value (mathematics) , business , financial system , finance , mechanical engineering , machine learning , computer science , engineering
We examine the relation between excess returns and corporate trade credit policy. Robust results suggest a lower market value of receivables for firms with higher lagged receivables levels, consistent with diminishing returns from extending trade credit. Further findings indicate that the diminishing return to trade credit varies with industry affiliation, market share, and financial constraint. Our results emphasize the importance of actively monitoring trade credit levels.