Supplying Trade Credit, Monetary Policy and Short-term Bank Loans

Trade credit and the speed of leverage adjustment

Management Decision ◽

10.1108/md-04-2019-0530 ◽

2019 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Ala’a Adden Abuhommous

Keyword(s):

Trade Credit ◽

Positive Impact ◽

Bank Loans ◽

Future Research ◽

Short Term ◽

Firm Level ◽

Good Opportunity ◽

Content Type ◽

Leverage Ratio ◽

The Impact

Purpose The purpose of this paper is to examine the impact of trade credit on the speed of adjustment (SOA) of short-term leverage. Bankruptcy cost is higher for over-levered firms, generating a good incentive to use trade credit as a lower cost substitute; hence, firms adjust capital more quickly. Design/methodology/approach Firm-level data are used from five countries, in two different economic orientations, during the period 2000–2017: bank-oriented economies include France, Germany and Japan, and market-oriented economies include the UK and the USA. First, using the two-step GMM the study estimates the target short-term leverage ratio. Then, it examines the impact of trade credit on the SOA of the actual leverage towards the target leverage ratio. Findings It finds a positive impact of a low amount of trade credit (high capacity) on the SOA for over-levered firms. This is in line with the substitution effect, where the bankruptcy cost is higher for over-levered firms, which leads them to substitute bank loans with trade credit. Research limitations/implications The study uses data from publicly traded firms; data from non-listed and small firms may be considered as a good opportunity for future research. Practical implications The policy implication that can be derived from the empirical results is that firms’ management should recognise the relationship between trade credit and deviation from target short-term leverage. During periods of high short-term leverage firms should use trade credit as a source of finance when adjusting the short-term leverage towards the target ratio. Originality/value This study is the first to examine the influence of trade credit on the SOA.

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Cost of Capital and Corporate Earning of Nigeria Quoted Firms: A Multi-Dimensional Analysis of Quoted Firms in Nigeria

Australian Finance & Banking Review ◽

10.46281/afbr.v1i1.73 ◽

2017 ◽

Vol 1 (1) ◽

pp. 41-65

Author(s):

Lucky Anyike Lucky

Keyword(s):

Trade Credit ◽

Cost Of Capital ◽

Random Effect ◽

Bank Loans ◽

Cost Of Debt ◽

Medium Term ◽

Short Term ◽

Cross Sectional ◽

Earnings Per Share

This study examined cost of capital and corporate earning of quoted firms in Nigeria. The objective was to examine the effect of short term, medium term and long term cost of capital on earnings per share. Cross sectional data was sourced from financial statement of twenty quoted firms from 2011-2016. Earnings per share was proxy for dependent variable while cost of trade credit, cost of short term bank loans, cost of commercial paper, cost of banker acceptance, cost of line of credit, cost of revolving credit, cost of hire purchase, cost of operating lease, cost of debt, cost of preference share and cost of equity are proxy for independent variables. After cross examination of the validity of the pooled effect, fixed effect and the random effect, the study accepts the fixed and random effect models. Findings reveals that cost of short term and cost of long term have significant relationship with corporate earning while cost of medium term have no significant effect on corporate earnings. It recommends the need for corporate strategies that will reduce cost of capital.

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ANALISIS INTEREST RATE PASS-THROUGH PADA MEKANISME TRANSMISI KEBIJAKAN MONETER INDONESIA

EKONOMIS Journal of Economics and Business ◽

10.33087/ekonomis.v1i1.13 ◽

2017 ◽

Vol 1 (1) ◽

pp. 125

Author(s):

Risna Amalia Hamzah ◽

Handri Handri

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Interest Rates ◽

Commercial Banks ◽

Money Market ◽

Bank Loans ◽

Short Term ◽

Consumer Loans ◽

Pass Through ◽

The Interest Rate

This reseach aimed to evaluate the performance of monetary policy, toexamine and test the magnitude of the response rates on deposits and bank loans to the money market interest rate, and how fast adjustment of the interest rate of deposits and loans in response to changes in money market interest rates. The performance evaluation of the level of adjustment of interest rate pass-through is done by testing the coefficient of adjustment of the interest rate deposits and loans in response to changes in money market interest rates. The object of this reseach is reported in interest rates interbank money market (rPUAB) and bank interest rates (loans and deposits) of all commercial banks in Indonesia, the data used in the form of a row of monthly time (monthly time series) of the annual report of Bank Indonesia and SEKI ( Economic and Financial statistics Indonesia), in the period 2005-2016. The method used in this research is the Autoregressive Distributed Lag (ARDL) for calculating the amount of long-term coefficients and Error Correction Model (ECM) -ARDL for calculating the amount of short-term coefficients. We find of the analysis indicate a change of monetary policy in the short term through the interest rate channel with its operational targets interest rates interbank money market (interbank) did not respond in full by the rates on deposits and loans in commercial banks in Indonesia, represented by the value of the degree of pass- through which less than 1 and there is a tendency that the longterm interest rates on loans and deposits experienced incomplete pass-through, then interest rates on consumer loans and deposits of 24 months has the speed of the slowest, which means consumer loans and deposits of 24 months in Indonesia unresponsive to changes in interbank rates. keywords: ARDL, ECM, Interest Rate pass-through, PUAB.

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Determinants of Supply and Demand for Trade Credit by Micro, Small and Medium-Sized Enterprises

Revista Contabilidade & Finanças ◽

10.1590/1808-057x201500940 ◽

2015 ◽

Vol 26 (68) ◽

pp. 208-222 ◽

Cited By ~ 6

Author(s):

Claudinê Jordão de Carvalho ◽

Rafael Felipe Schiozer

Keyword(s):

Financial Institutions ◽

Trade Credit ◽

Supply And Demand ◽

Bank Loans ◽

Short Term ◽

Relationship Model ◽

Credit Agency ◽

The Government ◽

Using Data ◽

Multivariate Relationship

<p>This article investigates the determinant factors of supply and demand for trade credit by micro, small and medium-sized enterprises (MSMEs), using data collected in a survey of managers from 481 firms in 32 cities in the states of São Paulo and Minas Gerais (Brazil) between 2008 and 2010. The multivariate relationship model proposed here is grounded in trade credit, agency and transaction costs theories. This study is based on a technique known as path analysis that uses a system of simple regressions estimated by simultaneous equations. The main results show the following: (i) trade credit and short-term bank loans are supplementary (and not substitute) sources of funds for MSMEs, which demonstrates that trade credit can be used by financial institutions as an indicator of the creditworthiness of the company; (ii) the proportion of credit sales, the days sales outstanding measure and sales growth are positively related to the amount of trade credit demanded, which suggests that trade credit is transferred along the supply chain; and (iii) the supply of trade credit is positively related to the importance that management ascribes to both internal capital and bank credit, which illustrates the strategic use of the supply of trade credit to increase sales. These results have important implications for companies' managers, financial institutions and the government agencies responsible for formulating policies that support and promote the development of small and medium-sized enterprises.</p>

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Justification of sale terms as a way to minimize the cost of trade credit

Investment Management and Financial Innovations ◽

10.21511/imfi.17(3).2020.27 ◽

2020 ◽

Vol 17 (3) ◽

pp. 360-372

Author(s):

Tetiana Konieva

Keyword(s):

Food Processing ◽

Trade Credit ◽

Negative Influence ◽

Bank Loans ◽

Short Term ◽

Cheap Alternative ◽

Rate Method ◽

The Individual ◽

The Cost

The individual and implicit nature of the trade credit cost can provoke its increase, and, as a result, violate payment discipline and negative influence on the business price.This research is dedicated to improving the sale terms definition to minimize the cost of trade credit. The methods for determining the cost of trade credit of a particular company are proposed to apply, considering the results of the comparative analysis of other enterprises from the same industry. Based on the example of Ukrainian food processing enterprises, it was revealed that 66% of them for the period 2013–2018 had an aggressive policy, and in 44% of the cases, it was connected with the growing role of trade credit. Minimum (23 days) and average (79 days) days payable outstanding, defined in the industry, were equated, respectively, to discount period and payment delay. Considering and comparing the cost of trade credit with alternative financial resources, the marginal level of the discount was determined. Considering the rate of short-term credit, according to the failed discount method, this level is 2.7% for 2018; toward the effective annual rate method – 2.48%. In the case of the overdraft, the marginal discount is 2.9% and 2.66%, respectively.When the actual discount is equal or below this level, the buyer attracts trade credit instead of bank loans. Discount higher than marginal, longer discount period, and cheap alternative financing sources provide early payments, positive financial results, and make trade credit free of charge.

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Perspectives on inflation Targeting Regime in Russia

Voprosy Ekonomiki ◽

10.32609/0042-8736-2014-11-107-121 ◽

2014 ◽

pp. 107-121 ◽

Cited By ~ 1

Author(s):

S. Andryushin

Keyword(s):

Monetary Policy ◽

Financial Markets ◽

Interest Rates ◽

Inflation Targeting ◽

Short Term ◽

Indirect Control ◽

Financial Account ◽

Domestic Prices ◽

Macroeconomic Indicators ◽

Private And Public

The paper analyzes monetary policy of the Bank of Russia from 2008 to 2014. It presents the dynamics of macroeconomic indicators testifying to inability of the Bank of Russia to transit to inflation targeting regime. It is shown that the presence of short-term interest rates in the top borders of the percentage corridor does not allow to consider the key rate as a basic tool of monetary policy. The article justifies that stability of domestic prices is impossible with-out exchange rate stability. It is proved that to decrease excessive volatility on national consumer and financial markets it is reasonable to apply a policy of managing financial account, actively using for this purpose direct and indirect control tools for the cross-border flows of the private and public capital.

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