Trade credit and firm value in business groups: evidence from Korea

This study examines the relation between trade credit and firm value in the context of business groups (i.e. chaebols). We find that the use of accounts receivable negatively influences firm value, and this negative impact is more pronounced for group-affiliated firms than for stand-alone firms. We further find that the negative moderating role of business groups on trade credit-firm value nexus is stronger for firms with lower product market competition, lower large shareholder ownership, higher cash holdings, and higher financial distress. Our main findings are robust to an endogeneity concern, an alternative proxy for trade credit, and different estimation specifications. Our empirical evidence sheds light on how the use of trade credit can potentially be linked to firm value from the perspective of business groups. Our findings can help stakeholders, including investors and creditors, better understand the trade credit-firm value link in the context of business groups.