Determinants of Corporate Trade Credit: An Empirical Study on Korean Firms


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Authors

  • Woo Sung Kim College of Business Administration, Konkuk University

Abstract

This study is designed to determine the motives for trade credit in Korean firms. Based on data collected from 14,660 firm-year observations running from 1992 to 2011 on the Korean Stock Exchange, this paper finds strong evidence on determinants of trade credit based on financial characteristics. The principal result is that older firms with larger size, lower growth, and higher profits tend to extend accounts receivable. This evidence, while consistent with the access to financing and price discrimination hypothesis, is difficult to reconcile with the growth hypothesis. Second, this paper provides evidence that firms with larger size and greater leverage, as well as young firms, appear to use accounts payable. This finding, while consistent with the financial constraint hypothesis, is difficult to harmonize with the financing and growth hypothesis. The paper contributes to the argument about trade credit motives. It may help managers in making financial policy concerning improving firm value in the Korean market.Keywords: trade credit, accounts receivable, accounts payableJEL classification: M41

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Author Biography

Woo Sung Kim, College of Business Administration, Konkuk University

Currently, Dr. Woo Sung Kim is the Lecturer of College of Business Administration in KonKuk University, Korea. Dr. Kim received the B.E. degree in law from the Hankuk University of Foreign Studies, Korea, in 1992, and Master and Ph.D. degrees in international law and business administration from the Konkuk University, Korea, in 2000 and 2011, respectively. His current research interests include trade credit, capital structure and corporate governance.

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Published

2016-04-19

How to Cite

Kim, W. S. (2016). Determinants of Corporate Trade Credit: An Empirical Study on Korean Firms. International Journal of Economics and Financial Issues, 6(2), 414–419. Retrieved from https://www.econjournals.com/index.php/ijefi/article/view/1804

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