Stock Price Informativeness and Supplier Trade Credit Extensions

Rongrong Zhang

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We show that suppliers cut back on trade credit extensions as they learn about future growth opportunities from their stock prices. We further explore how suppliers’ financial strength, relationship specific investments (RSI), product characteristics, and market power moderate the effect of price informativeness on trade credit. We show that the effect of price informativeness on trade credit is more pronounced when suppliers are financially constrained, or have less RSI, or are less exposed to inventory diversion risks, or have high market power. These results suggest that stock price informativeness is a second order factor whereas financial strength, relationship specific investments (RSI), product characteristics, and market power are the first order factors in shaping suppliers’ trade credit policies.

Original languageAmerican English
JournalThe Quarterly Review of Economics and Finance
DOIs
StatePublished - Oct 27 2022

Disciplines

  • Corporate Finance
  • Finance and Financial Management
  • Business

Keywords

  • Cash reserve
  • Stock price informativeness
  • Trade credit

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