TY - JOUR
T1 - Stock Price Informativeness and Supplier Trade Credit Extensions
AU - Zhang, Rongrong
N1 - Publisher Copyright:
© 2022 Board of Trustees of the University of Illinois
PY - 2022/10/27
Y1 - 2022/10/27
N2 - 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.
AB - 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.
KW - Cash reserve
KW - Stock price informativeness
KW - Trade credit
UR - https://digitalcommons.georgiasouthern.edu/finance-facpubs/138
UR - https://www.sciencedirect.com/science/article/pii/S1062976922001235
U2 - 10.1016/j.qref.2022.10.008
DO - 10.1016/j.qref.2022.10.008
M3 - Article
JO - The Quarterly Review of Economics and Finance
JF - The Quarterly Review of Economics and Finance
ER -