Some Empirical Evidence on the Determinants of Trade Credit at the Industry Level of Aggregation

The results obtained for accounts payable contrast with those for accounts receivable. With receivables, it appears that the level is determined more or less automatically by sales, linear trend, and season of the year. In the case of payables, it seems that trend and season are unimportant, and that the level of payables is determined instead by not only the level of purchases, but by capital requirements. Further, the current obligation on bank term-loans plays an important role in determining the response of payables to the need for working capital.However, it was shown that fairly simple models are sufficient to account for most of the variance in accounts payable. Although it was anticipated that monetary variables would be significant for accounts payable, this was not borne out. As for accounts receivable, most of the variance in accounts payable for the Lumber and Wood Products Industry can be associated with microeconomic (i.e., industry variables) and time variables alone.Several tentative conclusions concerning trade credit in the Lumber and Wood Products Industry may be listed:1. Receivables can be accounted for almost entirely by sales, trend, or season.2. Payables are not directly influenced by trend or season.3. The direct influences of money supply and interest rates on accounts payable are not significant.4. The effect of working capital on payables is adequately captured by treating current assets and current liabilities as separate independent variables.5. The current obligation on long-term bank loans is more important in determining the level of payables than are short-term bank loans or the level of long-term debt.