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The information content of trade credit

Author

Listed:
  • Aktas, Nihat
  • Bodt, Eric de
  • Lobez, Frédéric
  • Statnik, Jean-Christophe

Abstract

During 1992–2007, suppliers financed almost 10% of the total assets of US listed firms. This intensive usage of trade credit is puzzling in the light of its high (implicit) costs. By arguing that trade credit use provides valuable information to outside investors, we first derive a theoretical model that predicts a positive correlation between trade credit use and the quality of the firm’s investments. Then, using several proxies for firm’s investment quality (Z-score, return on assets, and long-run abnormal returns), we show that this prediction receives strong support from a large sample of US firms.

Suggested Citation

  • Aktas, Nihat & Bodt, Eric de & Lobez, Frédéric & Statnik, Jean-Christophe, 2012. "The information content of trade credit," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1402-1413.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:5:p:1402-1413
    DOI: 10.1016/j.jbankfin.2011.12.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade credit; Signaling; Z-score; Long-run abnormal returns;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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