Determinants of Supply of and Demand for Trade Credit: Static and Dynamic Approaches

Abstract

Objective: One of the short-term financing methods that have received less attention in domestic research is the use of trade credit in financing. In this study, the impacts of some financial variables in firms on the supply of and demand for trade credit have been examined. Method: The research sample includes 147 companies listed in the Tehran Stock Exchange in the period 2007-2017. To estimate the proposed model, panel data method and control approach of the effects of years and industries have been used as static approach, and to take into account the dynamics of supply and demand for trade credit, the dynamic panel data method with generalized moment method (GMM) has been used as complementary tests. Results: Findings showed that as firm's size and age increase, so does the supply and demand for trade credit. Also, it was shown that firm's liquidity inversely affects the supply and demand for trade credit. However, the results do not provide sufficient evidence on the significant impact of financial constraints on supply and demand for trade credit. The findings of the supplementary tests confirm the initial results of the study. Conclusion: Identifying the factors influencing the trade credit can help to properly manage trade credit and make optimal use of it to improve risk management and increase firm value.

Keywords

• trade credit
• static and dynamic panel data
• generalized method of moments (gmm)