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Stock price informativeness and supplier trade credit extensions

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  • Zhang, Rongrong

Abstract

We show that suppliers cut back on trade credit extensions as they learn about future growth opportunities from their stock prices. We further explore how suppliers’ financial strength, relationship specific investments (RSI), product characteristics, and market power moderate the effect of price informativeness on trade credit. We show that the effect of price informativeness on trade credit is more pronounced when suppliers are financially constrained, or have less RSI, or are less exposed to inventory diversion risks, or have high market power. These results suggest that stock price informativeness is a second order factor whereas financial strength, relationship specific investments (RSI), product characteristics, and market power are the first order factors in shaping suppliers’ trade credit policies.

Suggested Citation

  • Zhang, Rongrong, 2023. "Stock price informativeness and supplier trade credit extensions," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 284-294.
    • Handle: RePEc:eee:quaeco:v:90:y:2023:i:c:p:284-294
    DOI: 10.1016/j.qref.2022.10.008
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stock price informativeness; Trade credit; Cash reserve;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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