IDEAS home Printed from https://ideas.repec.org/p/ags/saea17/252850.html
   My bibliography  Save this paper

Trade Credit Financing In African Agro-Food Manufacturing Industry: Incidence And Motives

Author

Listed:
  • Dary, Stanley

Abstract

Trade credit is a form of short-term financing employed by non-financial firms in inter-firm trade. This study examines the incidence and the motives for extending trade credit among agro-food manufacturing firms in Africa. The study uses a subsample of agro-food firms from 2014 World Bank Enterprise Survey data from eight African countries: Burundi, Malawi, Mauritania, Namibia, Nigeria, Senegal, Sudan and South Sudan. The incidence of trade credit is relatively high among agro-food firms as 60.5% and 55% of firms extend and receive trade credit respectively. However, the mean proportion of yearly total input purchases received as trade credit (22%) is higher than the mean proportion of yearly total sales extended as trade credit (19%). From the two-limit Tobit estimation, firm size, manager experience, degree of product diversification, access to bank credit, overdraft availability and supplier credit are found to play a significant role in the level of trade credit firms extend to customers. However, when supplier credit is added to the model, it completely absorbs the effect of access to bank credit. For suspected endogeneity of supplier credit, an instrumental variable (IV) two-limit Tobit is estimated and the results show no presence of endogeneity. From the results, transaction, quality verification, marketing and long-term relationship motives for extending trade credit to customers are implied.

Suggested Citation

  • Dary, Stanley, 2017. "Trade Credit Financing In African Agro-Food Manufacturing Industry: Incidence And Motives," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252850, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea17:252850
    DOI: 10.22004/ag.econ.252850
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/252850/files/SAEA%20Conference%20paper.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.252850?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Van Horen, Neeltje, 2004. "Trade Credit as a Competitiveness Tool;Evidence from Developing Countries," MPRA Paper 2792, University Library of Munich, Germany, revised Mar 2005.
    2. Nicholas Wilson & Barbara Summers, 2002. "Trade Credit Terms Offered by Small Firms: Survey Evidence and Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(3&4), pages 317-351.
    3. Smith, Janet Kiholm, 1987. "Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-872, September.
    4. Seifert, Daniel & Seifert, Ralf W. & Protopappa-Sieke, Margarita, 2013. "A review of trade credit literature: Opportunities for research in operations," European Journal of Operational Research, Elsevier, vol. 231(2), pages 245-256.
    5. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-691.
    6. Maddala,G. S., 1986. "Limited-Dependent and Qualitative Variables in Econometrics," Cambridge Books, Cambridge University Press, number 9780521338257.
    7. Raymond Fisman & Mayank Raturi, 2004. "Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 345-352, February.
    8. Fabbri, Daniela & Klapper, Leora, 2008. "Market power and the matching of trade credit terms," Policy Research Working Paper Series 4754, The World Bank.
    9. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
    10. Bougheas, Spiros & Mateut, Simona & Mizen, Paul, 2009. "Corporate trade credit and inventories: New evidence of a trade-off from accounts payable and receivable," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 300-307, February.
    11. J. Stephen Ferris, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(2), pages 243-270.
    12. Rajendra R. Vaidya, 2011. "The Determinants of trade credit: Evidence from Indian manufacturing firms," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-012, Indira Gandhi Institute of Development Research, Mumbai, India.
    13. Nadiri, M Ishaq, 1969. "The Determinants of Trade Credit in the U.S. Total Manufacturing Sector," Econometrica, Econometric Society, vol. 37(3), pages 408-423, July.
    14. Yoshiro Miwa & J. Mark Ramseyer, 2005. "Trade Credit, Bank Loans, and Monitoring: Evidence from Japan," CIRJE F-Series CIRJE-F-381, CIRJE, Faculty of Economics, University of Tokyo.
    15. Nam Sang Cheng & Richard Pike, 2003. "The trade credit decision: evidence of UK firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(6-7), pages 419-438.
    16. Mariassunta Giannetti & Mike Burkart & Tore Ellingsen, 2011. "What You Sell Is What You Lend? Explaining Trade Credit Contracts," The Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 1261-1298.
    17. Matthew D. Hill & G. Wayne Kelly & G. Brandon Lockhart, 2012. "Shareholder Returns from Supplying Trade Credit," Financial Management, Financial Management Association International, vol. 41(1), pages 255-280, March.
    18. Nicholas Wilson & Barbara Summers, 2002. "Trade Credit Terms Offered by Small Firms: Survey Evidence and Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(3‐4), pages 317-351, April.
    19. Chee K. Ng & Janet Kiholm Smith & Richard L. Smith, 1999. "Evidence on the Determinants of Credit Terms Used in Interfirm Trade," Journal of Finance, American Finance Association, vol. 54(3), pages 1109-1129, June.
    20. Schwartz, Robert A., 1974. "An Economic Model of Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(4), pages 643-657, September.
    21. repec:bla:jfinan:v:43:y:1988:i:5:p:1127-41 is not listed on IDEAS
    22. Michael S. Long & Ileen B. Malitz & S. Abraham Ravid, 1993. "Trade Credit, Quality Guarantees, and Product," Financial Management, Financial Management Association, vol. 22(4), Winter.
    23. Emery, Gary W., 1984. "A Pure Financial Explanation for Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(3), pages 271-285, September.
    24. Gustafson, Cole R., 2004. "Agribusiness Trade Credit -- A Paradox," Agribusiness & Applied Economics Report 23513, North Dakota State University, Department of Agribusiness and Applied Economics.
    25. Benjamin S. Wilner, 2000. "The Exploitation of Relationships in Financial Distress: The Case of Trade Credit," Journal of Finance, American Finance Association, vol. 55(1), pages 153-178, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cristina Martínez-Sola & Pedro García-Teruel & Pedro Martínez-Solano, 2014. "Trade credit and SME profitability," Small Business Economics, Springer, vol. 42(3), pages 561-577, March.
    2. Belinda L. Del Gaudio & Gabriele Sampagnaro & Claudio Porzio & Vincenzo Verdoliva, 2022. "The signaling role of trade credit in bank lending decisions: Evidence from small and medium‐sized enterprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(1-2), pages 327-354, January.
    3. 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.
    4. Ala’a Adden Abuhommous & Tareq Mashoka, 2018. "A dynamic approach to accounts receivable: the case of Jordanian firms," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 171-191, June.
    5. Abdulla, Yomna & Dang, Viet Anh & Khurshed, Arif, 2020. "Suppliers' listing status and trade credit provision," Journal of Corporate Finance, Elsevier, vol. 60(C).
    6. Hoang, Cong Huan & Ly, Kim Cuong & Xiao, Qin & Zhang, Xuan, 2023. "Does national culture impact trade credit provision of SMEs?," Economic Modelling, Elsevier, vol. 124(C).
    7. Bougheas, Spiros & Mateut, Simona & Mizen, Paul, 2009. "Corporate trade credit and inventories: New evidence of a trade-off from accounts payable and receivable," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 300-307, February.
    8. Dary, Stanley K. & James, Harvey S., 2019. "Does investment in trade credit matter for profitability? Evidence from publicly listed agro-food firms," Research in International Business and Finance, Elsevier, vol. 47(C), pages 237-250.
    9. 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.
    10. Mariarosaria Agostino & Francesco Trivieri, 2014. "Does trade credit play a signalling role? Some evidence from SMEs microdata," Small Business Economics, Springer, vol. 42(1), pages 131-151, January.
    11. Galia Taseva, 2012. "Trade Credit Terms between the Firms in Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 110-136.
    12. Seifert, Daniel & Seifert, Ralf W. & Protopappa-Sieke, Margarita, 2013. "A review of trade credit literature: Opportunities for research in operations," European Journal of Operational Research, Elsevier, vol. 231(2), pages 245-256.
    13. Jiao Wang & Lima Zhao & Arnd Huchzermeier, 2021. "Operations‐Finance Interface in Risk Management: Research Evolution and Opportunities," Production and Operations Management, Production and Operations Management Society, vol. 30(2), pages 355-389, February.
    14. Tsuruta, Daisuke & Uchida, Hirofumi, 2019. "The real driver of trade credit," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    15. Duong Phuong Thao Pham & Thi Cam Ha Huynh, 2020. "The Impact of Trade Credit Investment on Manufacturing Firms' Profitability: Evidence from Vietnam," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 68(4), pages 775-796.
    16. Cristina Martínez Sola & Pedro J. García-Teruel & Pedro Martínez Solano, 2012. "Trade credit policy and firm value," Working Papers. Serie EC 2012-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    17. Cao, Zhangfan & Chen, Steven Xianglong & Lee, Edward, 2022. "Does business strategy influence interfirm financing? Evidence from trade credit," Journal of Business Research, Elsevier, vol. 141(C), pages 495-511.
    18. Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2013. "Are trade creditors relationship lenders?," Japan and the World Economy, Elsevier, vol. 25, pages 24-38.
    19. Heikki Peura & S. Alex Yang & Guoming Lai, 2017. "Trade Credit in Competition: A Horizontal Benefit," Manufacturing & Service Operations Management, INFORMS, vol. 19(2), pages 263-289, May.
    20. Mostafa Monzur Hasan & Adrian (Wai‐Kong) Cheung & Lidia Tunas & Hung Wan Kot, 2021. "Firm life cycle and trade credit," The Financial Review, Eastern Finance Association, vol. 56(4), pages 743-771, November.

    More about this item

    Keywords

    Agribusiness; Agricultural Finance; Financial Economics; Industrial Organization;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:saea17:252850. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/saeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.