Downstream Value of Upstream Finance

Document Type

Article

Publication Date

11-1-2013

School

Finance

Abstract

We examine market value implications of managing liquidity via supplier financing. Results suggest a direct link between shareholder wealth and use of trade credit, and the relation exhibits significant cross-sectional variation. In particular, the market value of trade credit varies with the liquidity of goods sold and competition in product markets. Evidence also indicates the value-supplier financing association strengthens with financial constraint, which supports the financing motive for trade credit. Further findings are consistent with the transaction cost motive. Overall, we conclude that shareholders value the strategic benefits associated with supplier financing and that downstream firms' characteristics influence this value. © 2013 The Eastern Finance Association.

Publication Title

Financial Review

Volume

48

Issue

4

First Page

697

Last Page

723

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