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Article
Publication date: 3 August 2023

James Routledge

The objective of this study is to investigate the relationship between trade credit supply and financial distress outcomes, considering the role that trade credit plays as a…

Abstract

Purpose

The objective of this study is to investigate the relationship between trade credit supply and financial distress outcomes, considering the role that trade credit plays as a substantial source of liquidity for distressed companies. Specifically, it examines whether there is an association between trade credit supply and the outcomes experienced by companies that undergo the voluntary administration (VA) insolvency procedure under Australian corporate law.

Design/methodology/approach

The study examines a sample of companies that were listed on the Australian Securities Exchange and entered VA between 2002 and 2019. Ordered logistic regression is used to determine the relation between trade credit and VA outcomes. The VA outcomes considered are as follows: (1) company liquidation, (2) orderly dissolution through an agreement with creditors, or (3) an agreement with creditors for reorganization of all or part of the company's business.

Findings

The findings show that trade creditors' willingness to supply credit is influenced by their rational expectations about the future prospects of financially distressed customers. Higher levels of trade credit and an increase in trade credit supply prior to VA are associated with a greater probability of achieving a reorganization versus a liquidation or dissolution outcome.

Originality/value

There is no apparent prior study investigating the connection between trade credit supply and outcomes for distressed companies entering insolvency administration. Therefore, this study provides novel evidence on the role of trade credit in the context of financial distress. Understanding the relationship between trade credit supply and outcomes is particularly significant considering that many jurisdictions offer distressed companies the opportunity to pursue reorganization under their insolvency laws. Examining financial distress and trade credit in the Australian creditor-friendly context expands on existing research. Prior research has predominantly relied on data from the United States, which has debtor-friendly bankruptcy law. Consequently, these studies may lack generalizability to jurisdictions with creditor-friendly law such as Australia.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

Book part
Publication date: 9 November 2009

Alexander Agronovsky and Christoph Trebesch

This paper analyzes the role of trade credit in financial crises. Using newly collected data, we investigate the impact of negotiated agreements between debtor and creditor

Abstract

This paper analyzes the role of trade credit in financial crises. Using newly collected data, we investigate the impact of negotiated agreements between debtor and creditor countries on bilateral trade. Our results indicate that exports to creditor countries rise considerably after debt restructuring agreements in the period 1980–1997, while we find no effect for imports and for the more recent period. We identify trade credit as one key channel behind this positive effect. Apparently, crisis resolution efforts, in particular agreements to extend and roll over trade credits, play a crucial role for export recoveries. This gives some support to current worldwide efforts to sustain trade financing via coordinated policy interventions.

Details

Credit, Currency, or Derivatives: Instruments of Global Financial Stability Or crisis?
Type: Book
ISBN: 978-1-84950-601-4

Article
Publication date: 1 January 1975

Knight's Industrial Law Reports goes into a new style and format as Managerial Law This issue of KILR is restyled Managerial Law and it now appears on a continuous updating basis…

Abstract

Knight's Industrial Law Reports goes into a new style and format as Managerial Law This issue of KILR is restyled Managerial Law and it now appears on a continuous updating basis rather than as a monthly routine affair.

Details

Managerial Law, vol. 18 no. 1
Type: Research Article
ISSN: 0309-0558

Book part
Publication date: 2 March 2011

Ki C. Han, Sukhun Lee and David Y. Suk

When faced with a financial crisis, debtor countries rarely choose to default on their international financial obligations. Instead, they typically choose to renegotiate their…

Abstract

When faced with a financial crisis, debtor countries rarely choose to default on their international financial obligations. Instead, they typically choose to renegotiate their debt service obligations. According to a number of economists, the main motivating factor behind borrowers' and creditors' willingness to restructure is the benefit associated with preserving international trade ties. This raises an interesting question: is the benefit associated with maintaining international trade ties shared equally between the borrower and creditor banks? Or is the outcome dependent on a so-called ‘bargaining game’ between the borrower and creditor banks, and if so, can we identify these variables? According to our analysis, as a borrower's trade ties with developed countries strengthen, the borrower's (and/or creditor's) bargaining power diminishes (strengthens) and it thereafter agrees to restructure at less favourable terms. However, even after controlling for trade ties, we found that major borrowers were able to extract more concessions from the lenders.

Details

The Impact of the Global Financial Crisis on Emerging Financial Markets
Type: Book
ISBN: 978-0-85724-754-4

Keywords

Article
Publication date: 27 July 2012

Thanuja Ramachandra and James Olabode Bamidele Rotimi

The construction industry suffers from significantly large number of insolvencies than other industries due to its inherent characteristics and these have dire consequences on…

Abstract

Purpose

The construction industry suffers from significantly large number of insolvencies than other industries due to its inherent characteristics and these have dire consequences on project participants and the industry at large. The purpose of this paper is to determine both the causes of liquidation and the distribution of losses to construction parties through an analysis of liquidators' reports on some construction firms based in New Zealand.

Design/methodology/approach

The study collates primary information from Liquidators' reports for firms operating within three main sub‐sectors of the construction industry. The information was then analysed using simple interpretative techniques for the period covering 2005 to 2009. Altogether the data set used for the analyses included 65 construction firms.

Findings

The major reasons for construction insolvencies are found to be: financial difficulties due to non‐payment, poor debt management, drop in property prices, and the liquidation of related companies. Other reasons are discussed within the paper. The paper also illustrates that liquidation of construction firms causes payment delays and consequential losses to project stakeholders. The results show that settlements of trade creditors take an average of 18 months and payment is usually not received fully after liquidation proceedings. It is apparent that there is little security for payment losses in construction insolvencies.

Originality/value

In this paper, information on reasons for and the consequences of liquidation provide a valuable thought‐starter for managing payment problems in the construction industry. The paper extends knowledge on possible security to payment losses experienced by lower tier project participants when the upper tiers become illiquid.

Details

Journal of Financial Management of Property and Construction, vol. 17 no. 2
Type: Research Article
ISSN: 1366-4387

Keywords

Article
Publication date: 4 April 2019

Tareq Na’el Al-Tawil

The purpose of this paper is to examine the available judicial precedence using both the United Arab Emirates and UK laws to bring up a much broader understanding of wrongful and…

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Abstract

Purpose

The purpose of this paper is to examine the available judicial precedence using both the United Arab Emirates and UK laws to bring up a much broader understanding of wrongful and fraudulent trading concepts and provide a critical analysis of potential personal liabilities of directors in the UK and UAE jurisdictions for the acts of fraud and mismanagement.

Design/methodology/approach

This paper seeks to understand corporate fraud from the aspect of trading. It will take an in-depth look into wrongful trading and fraudulent trading in the UAE and UK jurisdictions while analyzing the punishment for the same. The study will also look at famous cases for the same while seeking to understand the mitigation measures undertaken in various nations across the world.

Findings

The author studies the contents and provisions of the UK Insolvency Act 1986, truly the concepts of wrongful trading and fraudulent trading are not explicitly mentioned in the UAE Law, but the said terms associated with “lifting of corporate veil” are notionally existent under the UAE Federal Law No2/2015, otherwise known as Companies Law (Articles 84 and 162-1), and under the UAE Bankruptcy Law (Federal Decree Law No. 9 of 2016), which provides legislation governing trading while the company is insolvent.

Originality/value

In the current paper, the author is keen to examine the available judicial precedence to bring up a much broader understanding of the mentioned concepts and provide a critical analysis of potential personal liabilities of directors in the UK and UAE jurisdictions for the acts of fraud and mismanagement.

Details

International Journal of Law and Management, vol. 61 no. 2
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 19 August 2020

Igbekele Sunday Osinubi

Existing studies that documented the effect of financial distress on trade credit provisions did not include measures financial constraint. It is possible that financial distress…

1138

Abstract

Purpose

Existing studies that documented the effect of financial distress on trade credit provisions did not include measures financial constraint. It is possible that financial distress is tie to financial constraints, and both financial distress and financial constraints mutually reinforce each other in their effects on trade credit provision. The purpose of this study is to evaluate the effects of financial constraint and financial distress on trade credit provisions in the UK FTSE 350 listed firms.

Design/methodology/approach

This study employs panel data in the estimation of the determinants of accounts payables and accounts receivables of the UK FTSE 350 firms from 2009 to 2017.

Findings

This study finds that financial distress has significant positive effect on accounts payables and a significant negative effect on accounts receivables. Financial constraints have significant negative effect on accounts payables and a significant positive effect on accounts receivables.

Practical implications

Trade creditor desiring to maintain an enduring product-market relationship grant more concessions to customer in financial distress. The amount of trade credit that sellers provide to financially constrained firm is an increasing function of the buyer's creditworthiness. The urgent cash needs of financially distressed firms lead them to sell trade receivables to factoring company leading to reduction in trade receivables. Firm facing external financing constraints increase trade credit to customers in anticipation of cash flow inflow to enhance liquidity.

Originality/value

This study shows that financial distress and financial constraints mutually reinforce each other in their effects on trade credit provisions, and firm's financing condition contributes to divergence in trade credit policies.

Details

Asian Review of Accounting, vol. 28 no. 4
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 31 July 2009

Bruno Funchal and Mateus Clovis

The purpose of this paper is to study the effect of changes in creditors' priority defined by the bankruptcy law on firms' capital structure.

1024

Abstract

Purpose

The purpose of this paper is to study the effect of changes in creditors' priority defined by the bankruptcy law on firms' capital structure.

Design/methodology/approach

Taking advantage of the Brazilian bankruptcy law reform as an experiment and using publicly traded firms' balance sheet data, it compares Brazilian firms capital structure before and after the new law, using fixed‐effects panel regression. The empirical results are in line with theories that predict the effects on the capital structure due to changes in creditors' expectations.

Findings

This paper finds evidence of an increase in the debt portion of the capital structure.

Originality/value

The paper contributes the law and finance empirical literature, pointing out that change in creditors' protection induces significant changes in the firms' financing policy.

Details

Journal of Financial Economic Policy, vol. 1 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 20 January 2020

Haroun Rahimi

The purpose of this study is to explore the role of hawala in supporting Afghanistan’s business climate. It illustrates the use of hawala as credit and its importance for the…

Abstract

Purpose

The purpose of this study is to explore the role of hawala in supporting Afghanistan’s business climate. It illustrates the use of hawala as credit and its importance for the local merchant community.

Design/methodology/approach

The empirical data presented in this article draws from more than 83 semi-structured interviews with Afghan merchants, business leaders, hawaladars and judicial officials, conducted between March and August 2017 in five major provinces of Afghanistan, namely, Kabul, Herat, Balkh, Nangarhar and Kandahar. These five provinces collectively represent half of Afghanistan’s economy, one-third of Afghanistan’s total population and more than four-fifth of Afghanistan’s urban population. The commercial courts that sit in these five provinces hear more than 90% of total commercial disputes in the country.

Findings

In Afghanistan, despite their reputation for being the bankers of terrorists and criminals, hawaladars primarily serve Afghan merchants – the overwhelming majority of their customers – helping them cope with an uncertain business climate. Within supply chains, Afghan importers rely on credit-hawala to protect themselves from the interruptions of cash flow that are prevalent throughout the Afghan economy.

Practical implications

Drawing on extensive field research, this article highlights how hawala stabilizes financing and markets in Afghanistan, arguing that while hawala regulations are necessary to counter abuse of hawala, regulators must be cognizant of how hawala is used in financing of legitimate businesses, or they will exacerbate the problems of access to credit.

Originality/value

While the historical studies of hawala reveal its inextricable link with trade financing, the current hawala literature completely neglects hawala systems’ contemporary financing role. Instead, the literature is completely dominated by the globalization trend of terrorism, money laundering and worker migration. Neglecting the trade financing role of hawala causes policymakers not to appreciate the impacts of hawala regulations on the trade fully. Overlooking hawalas’ role in financing transnational trade also results in the exclusion of an important group of stakeholders – namely, merchant-users of hawala services who are the main beneficiaries of hawaladars’ financing services – from the process of regulation of hawala systems. The main reason that hawala regulations have failed to gain tractions in countries such as Afghanistan is that these regulations have not been cognizant of the multifaceted functions of hawala markets and do not include all stakeholders in the regulation process.

Details

Journal of Money Laundering Control, vol. 23 no. 1
Type: Research Article
ISSN: 1368-5201

Keywords

Open Access
Article
Publication date: 13 November 2019

Le Khuong Ninh and Truong Diem Kieu

The purpose of this paper is to investigate the determinants of the amount of trade credit granted to shrimp farmers in Ca Mau.

1120

Abstract

Purpose

The purpose of this paper is to investigate the determinants of the amount of trade credit granted to shrimp farmers in Ca Mau.

Design/methodology/approach

Based on the literature review, the authors proposed six hypotheses on the determinants of the amount of trade credit granted to shrimp farmers. Data collected from 120 shrimp farmers in Ca Mau were used to test the proposed hypotheses.

Findings

Two out of six determinants, i.e. the size of input order (a pulling factor) and the competition among input suppliers (a pushing factor), are significantly positively associated with the amount of trade credit granted to shrimp farmers. No impact of the other determinants was found. The findings imply that shrimp farmers should join cooperatives to enhance access to trade credit and mitigate the risk for input suppliers.

Originality/value

This paper sheds light on the fact that trade credit is still granted to such risky buyers as shrimp farmers, which has not been explored by previous studies.

Details

Journal of Economics and Development, vol. 21 no. 2
Type: Research Article
ISSN: 2632-5330

Keywords

1 – 10 of over 5000