Abstract
Companies can use supplier financing as a source of short-term finance. The main objective of this paper is to extend the literature on the determinants of accounts payable and to test whether the accounts payable follow a model of partial adjustment. To do this, we use a sample of 3,589 small and medium sized firms in the UK. Using a dynamic panel data model and employing GMM method of estimation we control for unobservable heterogeneity and for potential endogeneity problems. The results reveal that firms have a target level of accounts payable. In addition, we find that larger firms, with better access to alternative internal and external financing and with a lower cost, use less credit from suppliers. Moreover, firms with higher growth opportunities use more trade credit for financing sales growth.
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Notes
The European Payment Guide, made by Intrum Justitia, provides an insight into the payment customs and practices of the 22 countries participating in the survey.
Due to value for purchases not being in straight financial statements we use “cost of good sold” as a proxy for purchases.
E(x it ε is ) ≠ 0 for s ≤ t and E(x it ε is ) = 0 for all s > t.
We also consider current liabilities as and industry characteristic and the results are similar. The main characteristic of panel data model is to control of firm specific aspects, and industry would be considered in this way. Perhaps it explains the lack of significance of specify industry effects in regressions.
Neither do the results change if we eliminate industries not carrying inventory (service firms and utilities and transportation firms).
Economic impact of statistically significant explanatory variables is measured as the percentage of change (over the mean value) in the dependent variable due to a one standard deviation change in the explanatory variable, all other things being equal. In addition, recall that in this partial adjustment model, the estimated coefficient (δ k ) is equal to γβ k . So, the interpretation of how that characteristic impacts target cash levels (β k ) should be divided by γ.
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Acknowledgments
We acknowledge financial support from Fundación Séneca- Science and Technology Agency from Region of Murcia- (Program: PCRTRM 07-10). Research project 08822/PHCS/08. The authors also acknowledge support from Fundación CajaMurcia.
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García-Teruel, P.J., Martínez-Solano, P. A dynamic perspective on the determinants of accounts payable. Rev Quant Finan Acc 34, 439–457 (2010). https://doi.org/10.1007/s11156-009-0124-0
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DOI: https://doi.org/10.1007/s11156-009-0124-0