Intangible assets and trade credit policy

Abstract

Purpose

The purpose of this paper is to identify whether the rise in intangible asset investment is related to trade credit investment and whether this relationship is driven by financial constraint and other firm factors.

Design/methodology/approach

The study conducts fixed effect regressions testing the relationship between trade credit investment and intangible asset levels. The relationship is further examined for all firms based on product type, financial constraint and sales growth.

Findings

There is a negative relationship between investment in trade credit and the level of intangible assets as a proportion of total assets. This negative relationship is largely explained by firms in industries that traditionally utilize more trade credit, firms with financial constraints and firms with low sales growth.

Practical implications

The level of investment in intangible assets continues to rise, while investment in trade credit is declining. This paper is the first to identify whether these trends could be related and to provide some explanation why.

Originality/value

This study is the first to link investment in trade credit with investment in intangible assets. There is a negative relationship that is most pronounced for firms that typically offer more trade credit, that are experiencing financial constraint and that are experiencing low growth.

Citation

Hartsema, S.T., Harris, C., Li, Z. and Morillon, T.G. (2021), "Intangible assets and trade credit policy", Managerial Finance, Vol. 47 No. 9, pp. 1286-1299. https://doi.org/10.1108/MF-07-2020-0372