Substitute or complement?: The use of trade credit as a financing source among SMEs
2017 (English)In: Management Research Review, ISSN 2040-8269, E-ISSN 2040-8277, Vol. 40, no 1, 10-27 p.Article in journal (Refereed) Published
Purpose: This study aims to investigate trade credit as a financing source among small- and medium-sized enterprises (SMEs), particularly the influence of short-term debt, long-term debt and profitability on the use of such credit. Design/methodology/approach: Ordinary least squares (OLS), fixed-effects and generalized method of moments (GMM) system models were used to analyze a large cross-sectional panel data set of 15,897 Swedish SMEs in five industry sectors for the 2009-2012 period. Findings: The study provides empirical evidence that long-term debt and profitability each significantly and negatively influence trade credit (i.e. accounts payable) and that short-term debt positively influences trade credit. Notably, while trade credit seems to complement other short-term debt, it replaces long-term debt. Moreover, firm size in terms of sales is positively related and firm age is negatively related to accounts payable. Industry affiliation is another significant explanatory variable. Practical implications: The results provide debt holders, potential investors, policymakers and academic researchers with insights into the relationship between trade credit demand, on the one hand, and external financing (i.e. short- and long-term debt) and internal retained earnings (i.e. profit), on the other. From a manager’s perspective, the findings may be important for decision-making regarding trade credit use. Originality/value: When investigating trade credit determinants, the literature has seldom distinguished between short- and long-term debt and considered that they may influence the use of trade credit in different ways. The present study adds to the literature by using OLS, fixed-effects and GMM system models to analyze a large cross-sectoral sample in a high-tax country where both bank loans and trade credit are considered important financing instruments.
Place, publisher, year, edition, pages
2017. Vol. 40, no 1, 10-27 p.
Accounts payable, Long-term debt, Short-term debt, Small- and medium-sized enterprises, Trade credit
IdentifiersURN: urn:nbn:se:miun:diva-30106DOI: 10.1108/MRR-06-2015-0153ScopusID: 2-s2.0-85010060622OAI: oai:DiVA.org:miun-30106DiVA: diva2:1073778