Net trade credit: what are the determinants?

Abstract

Purpose The purpose of this paper is to extend the literature on trade receivables and trade payables by examining the determinants of net trade credit. Design/methodology/approach To do that, a sample of 67,047 firms in the UK with 443,190 firm year observations is used. Findings The results are robust to unobserved heterogeneity and industry effects. The evidence suggests that firms with more inventories, market share and are financially distressed invest less in trade credit. Moreover, higher operating cash flow, annual sales growth, export propensity, access to bank credit and larger firms lead to higher investment in trade credit. Originality/value Additionally, the paper broadens the scope of the literature by analysing the determinants of net trade credit around the financial crisis and industry competitiveness.