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Trade credit and risk of insolvency

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  • Galya Taseva-Petkova

Abstract

The article analyzes the relation between the use of trade credit and risk ofinsolvency of nonfinancial enterprises in Bulgaria. Data from empiricalsociological examination among 201 nonfinancial enterprises are used. Theresults confirm the financial distress theory of trade credit. It was found out thatfirms that are financially constraint use more credits from suppliers andfinancially stable firms are prone to wait longer before taking measures in caseof payments delay from clients. It is also found that postponed accountreceivables create serious liquidity problems for enterprises and difficulties inpaying basic expenses for their activity. One of the conclusions from theinvestigation is that for a number firms, trade credit is a source of financingfrom last resort, because difficulties in paying to suppliers and problems withdelayed account receivables are indicators of insolvency risk of firms.

Suggested Citation

  • Galya Taseva-Petkova, 2015. "Trade credit and risk of insolvency," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 77-100,101-.
    • Handle: RePEc:bas:econth:y:2015:i:4:p:77-100,101-121
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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