The trade credit in the Spanish agro-food industry
New Medit, vol 10, n.2, (June 2011), pp. 51-57
Jel classification: C23, D21, L66
Selling on credit is rather frequent in Mediterranean countries. Its generalized use can lead to excessive enlargements of the payment periods and can consequently deteriorate the profitability of firms. Despite the relevance of this problem, empirical research works are just a few. This work intends to fill this gap and to shed light on the factors related to the extension of trade credit. In the theoretical and empirical literature, different motives have been proposed to explain this issue: a mechanism to reduce transaction costs, a financial alternative to the bank system and an additional tool to improve commercial activities. To contrast these ideas a panel of 388 firms of the Spanish agrofood industry has been taken, and static and dynamic regression models have been estimated by using robust methods to heteroskedasticity, autocorrelation and endogeneity of the explanatory variables. The results confirm that trade credit receivable is associated with more active firms and with cheaper bank financing. Other factors with positive relationships are short-term bank debts and accounts payable. These findings are consistent with commercial motives, rather than a pure financial view, in the sense that financial distressed producers extend trade credit as a way of promoting their products and in turn increasing their sales.
delayed payments, firm behaviour, credit