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Trade credit supply in African agro-food manufacturing industry: determinants and motives

Author

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  • Stanley Kojo Dary
  • Harvey S. James Jr

Abstract

Purpose - The purpose of this paper is to examine the determinants and motives for supply of trade credit among agro-food manufacturing firms in African countries. Design/methodology/approach - The paper uses a subsample of food manufacturing firms from World Bank Enterprise Survey in eight African countries in 2014. Two-limit Tobit models are specified for the determinants of trade credit supply (TCS) and the motives for TCS are inferred from the determinants. An instrumental variable two-limit Tobit model is estimated to check the endogeneity of trade credit received (TCR) in relation to trade credit supplied. Findings - The level of TCS is significantly related with degree of product diversification, manager experience, level of TCR and overdraft availability. From the results, financing motives (particularly liquidity and redistribution) and commercial motives (particularly marketing and quality guarantee motives) for TCS are implied. Research limitations/implications - The parameter estimates may contain both demand and supply effects as the two effects cannot be separated due to absence of information on firms’ customers in the data set. The results should be interpreted in this context. Originality/value - The motives for TCS by agro-food firms is less understood in the agricultural finance literature and this paper makes an important contribution in this regard. In particular, the paper shows the degree of product diversification is directly associated with TCS, a relationship which has not been explored in the trade credit literature.

Suggested Citation

  • Stanley Kojo Dary & Harvey S. James Jr, 2018. "Trade credit supply in African agro-food manufacturing industry: determinants and motives," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 78(3), pages 312-329, January.
    • Handle: RePEc:eme:afrpps:afr-03-2017-0017
    DOI: 10.1108/AFR-03-2017-0017
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    Citations

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    Cited by:

    1. Asongu, Simplice & Odhiambo, Nicholas, 2022. "The paradox of governance and natural resource rents in Sub-Saharan Africa," MPRA Paper 119066, University Library of Munich, Germany.
    2. Simplice A. Asongu & Nicholas M. Odhiambo, 2024. "Governance quality and trade performance in Sub‐Saharan Africa," World Affairs, John Wiley & Sons, vol. 187(1), pages 78-93, March.
    3. Simplice A. Asongu & Thales P. Yapatake Kossele & Joseph Nnanna, 2021. "Not all that glitters is gold: political stability and trade in Sub-Saharan Africa," Research Africa Network Working Papers 21/005, Research Africa Network (RAN).
    4. H. Kent Baker & Debidutta Pattnaik & Satish Kumar, 2022. "Trade credit and firm profitability: Empirical evidence from India," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 3934-3953, October.

    More about this item

    Keywords

    Agro-food firms; Trade credit motives; Trade credit received; Trade credit supply; Trade credit theories; Two-limit Tobit; L66; G32; D22;
    All these keywords.

    JEL classification:

    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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