A causal and nonlinear relationship between trade credit policy and firm value: Evidence from an emerging market

Abstract

This study examines whether there is a causal and nonlinear relationship between trade credit policy and firm value. In line with this purpose, the 2005Q1–2018Q4 period data is examined for 103 companies operating in the manufacturing industry in an emerging market, Borsa Istanbul, and the relationships revealed. The nonlinear relationship between trade credit and firm value has been proved with the two -step System GMM (Generalized Moment of Methods) and causality with Dumitrescu-Hurlin (2012) heterogeneous panel causality tests. According to the findings, a nonlinear (inverted U-shaped) relationship has been found between trade credit policy and firm value. Moreover, the values of firms that have moved away from optimum trade credit levels are also negatively affected. One of the original aspects of this study is that the bidirectional causal relationship between trade credit policy and firm value has been revealed.

Keywords

• trade credit policy
• firm value
• emerging market
• system gmm
• nonlinearity
• panel causality
• g30
• g32
• l25