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Product differentiation, market dynamics and the value relevance of trade payables: Evidence from UK listed firms

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  • Afrifa, Godfred Adjapong
  • Gyapong, Ernest
  • Monem, Reza M.

Abstract

This paper provides a comprehensive evidence on how product and market dynamics affect the value relevance of trade payables. Using a sample of 2559 UK listed firms over the period 2005–2014, we find a positive relationship between trade payables and firm performance. Our evidence suggests that trade payables increase (decrease) performance in firms with differentiated products and demand uncertainty (larger market share). We demonstrate that the relative value relevance of bank credit versus suppliers’ credit is dependent on the nature of the product, the level of sales volatility, and market share. We use an innovative approach to assess the robustness of our results to omitted variable bias.

Suggested Citation

  • Afrifa, Godfred Adjapong & Gyapong, Ernest & Monem, Reza M., 2018. "Product differentiation, market dynamics and the value relevance of trade payables: Evidence from UK listed firms," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(3), pages 235-253.
    • Handle: RePEc:eee:jocaae:v:14:y:2018:i:3:p:235-253
    DOI: 10.1016/j.jcae.2018.06.001
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    Cited by:

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    2. Al-Hadi, Ahmed & Al-Abri, Almukhtar, 2022. "Firm-level trade credit responses to COVID-19-induced monetary and fiscal policies: International evidence," Research in International Business and Finance, Elsevier, vol. 60(C).
    3. Ernest Gyapong & Daniel Gyimah & Ammad Ahmed, 2021. "Religiosity, borrower gender and loan losses in microfinance institutions: a global evidence," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 657-692, August.
    4. Mabel D. Costa & Ahsan Habib, 2021. "Trade credit and cost stickiness," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 1139-1179, March.
    5. Afrifa, Godfred Adjapong & Tingbani, Ishmael & Adesina, Oluseyi Oluseun, 2022. "Stochastic frontier modelling of working capital efficiency across Europe," Technological Forecasting and Social Change, Elsevier, vol. 184(C).
    6. Godfred Adjapong Afrifa & Ishmael Tingbani & Ahmad Alshehabi & Hussein Halabi, 2024. "Short-term credit policies and operating performance," Review of Quantitative Finance and Accounting, Springer, vol. 62(4), pages 1755-1790, May.

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    More about this item

    Keywords

    Product differentiation; Market dynamics; Trade payables; Excess return;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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