Title: Examining the relationship between trade credit payment terms and manufacturing firm performance: the moderating effect of market share

Authors: James R. Kroes; Andrew S. Manikas; Benjamin P. Foster

Addresses: College of Business and Economics, Boise State University, Boise, Idaho, USA ' College of Business, University of Louisville, Louisville, Kentucky, USA ' College of Business, University of Louisville, Louisville, Kentucky, USA

Abstract: Using the days of payables outstanding (DPO) as a measure of trade credit, we explore how DPO relates to two measures of firm performance and how the market share of the manufacturer affects this relationship. We find that longer DPO periods are associated with higher levels of firm operational performance (gross margin) and market performance (Tobin's q), and that the market share of manufacturing firms is related to longer DPO periods. We also find that the moderating effect of market share on the relationship between DPO and performance is positive for gross margin but negative for Tobin's q. A comparison of these effects indicates that extending DPO should benefit most firms. However, for firms with very low or high shares of their markets, the decision to extend payments may result in a trade-off between improvements in operational or market performance.

Keywords: trade credit; payables; market share; firm performance; cash conversion cycle; supply chain finance.

DOI: 10.1504/IJISM.2024.142783

International Journal of Integrated Supply Management, 2024 Vol.17 No.3/4, pp.297 - 322

Accepted: 16 Aug 2024
Published online: 21 Nov 2024 *

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