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Determinants of Corporate Trade Credit: An Empirical Study on Korean Firms

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  • Woo Sung Kim

    (Department of Business Administration, College of Business Administration, Konkuk University, 120, Neungdong-ro Gwangjin-gu, Seoul 05029, Korea)

Abstract

This study is designed to determine the motives for trade credit in Korean firms. Based on data collected from 14,660 firm-year observations running from 1992 to 2011 on the Korean Stock Exchange, this paper finds strong evidence on determinants of trade credit based on financial characteristics. The principal result is that older firms with larger size, lower growth, and higher profits tend to extend accounts receivable. This evidence, while consistent with the access to financing hypothesis, is difficult to reconcile with the growth hypothesis and price discrimination hypothesis. Second, this paper provides evidence that firms with larger size and greater leverage, as well as young firms, appear to use accounts payable. This finding, while consistent with the financial constraint hypothesis, is difficult to harmonize with the financing and growth hypothesis. The paper contributes to the argument about trade credit motives. It may help managers in making financial policy concerning improving firm value in the Korean market.

Suggested Citation

  • Woo Sung Kim, 2016. "Determinants of Corporate Trade Credit: An Empirical Study on Korean Firms," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 414-419.
    • Handle: RePEc:eco:journ1:2016-02-7
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    References listed on IDEAS

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    Cited by:

    1. Dary, Stanley K. & James, Harvey S., 2019. "Does investment in trade credit matter for profitability? Evidence from publicly listed agro-food firms," Research in International Business and Finance, Elsevier, vol. 47(C), pages 237-250.
    2. Duong Phuong Thao Pham & Thi Cam Ha Huynh, 2020. "The Impact of Trade Credit Investment on Manufacturing Firms' Profitability: Evidence from Vietnam," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 68(4), pages 775-796.

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    More about this item

    Keywords

    Trade Credit; Accounts Receivable; Accounts Payable;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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