The evolution of trade credit: New evidence from developed versus developing countries

Michael Machokoto, Daniel Gyimah, Boulis Maher Ibrahim* (Corresponding Author)

*Corresponding author for this work

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Abstract

Using a large sample of listed firms from 72 countries over the period 1990–2019, we document a marked decrease in trade credit that is more pronounced for firms in developed economies relative to those in emerging economies. We find little evidence that firm characteristics drive this trend, as their relation with trade credit remains relatively stable throughout the sample period. We test several competing propositions and find that the listing decade, institutional factors, and financial development explain the downward trajectory in trade credit. We also report diminishing returns to trade credit that are higher in the US and other developed economies than in emerging economies. These results are robust to alternative definitions of trade credit and to controlling for several firm-specific and macroeconomic factors.
Original languageEnglish
Pages (from-to)857–912
Number of pages56
JournalReview of Quantitative Finance and Accounting
Volume59
Issue number3
Early online date11 May 2022
DOIs
Publication statusPublished - Oct 2022

Keywords

  • Trade credit
  • time series
  • Emerging economies
  • firm age
  • employment

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