Trade credit and firm profitability: moderation analysis of intercompany financing in Italy
Journal of Small Business and Enterprise Development
ISSN: 1462-6004
Article publication date: 30 September 2020
Issue publication date: 23 October 2020
Abstract
Purpose
The purpose of this paper is to verify whether the benefits gained by granting extended payment terms can lead to higher profitability for Italian companies. Moreover, the analysis aims to investigate whether trade credit offered at a higher level than the sector average can contribute to the profitability of companies. Finally, it aims to test whether the profitability connected to granting trade credit is higher for the unconstrained and financially sound companies.
Design/methodology/approach
The empirical analyses are conducted on a sample of Italian firms, over the period 2008–2016. The methodologies used to test research hypotheses are panel analysis with fixed effects and random effects models, as well as the generalized method of moment (GMM).
Findings
The results show the contribution of trade credit to the profitability of Italian companies. The empirical analysis also suggests that companies might improve their profitability by increasing investments in trade receivables to a greater extent than companies in their business sector. Finally, the greater use of payables to suppliers and the higher incidence of bank debt reduce the contribution of accounts receivable to the profitability of companies.
Originality/value
This study contributes to the existing literature as very few studies have analyzed whether trade credit offered at a higher level than the sector average may contribute to the profitability of companies. Moreover, the study provides new evidence on the moderation effect of payables to banks and suppliers on the contribution of granting trade credit to company performance.
Keywords
Citation
Bussoli, C. and Conte, D. (2020), "Trade credit and firm profitability: moderation analysis of intercompany financing in Italy", Journal of Small Business and Enterprise Development, Vol. 27 No. 6, pp. 965-985. https://doi.org/10.1108/JSBED-04-2020-0133
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited