Accounts payable

Abstract: The relation between working capital management and corporate profitability is investigated for a sample of 1009 large Belgian non-financial firms for the 1992-1996 period. Trade credit policy and inventory policy are measured by number of days accounts receivable, accounts payable and inventories, and the cash conversion cycle is used as a comprehensive measure of working capital management. The results suggest that managers can increase corporate profitability by reducing the number of days accounts receivable and inventories. Less profitable firms wait longer to pay their bills.

Abstract: The relation between working capital management and corporate profitablity is investigated for a sample of 1,009 large Belgian non-financial firms for the 1992-1996 period. Trade credit policy and inventory policy are measured by number of days accounts receivable, accounts payable and inventories, and the cash conversion cycle is used as a comprehensice measure of working capital management. The results suggest that managers can increase corporate profitablity by reducing the number of days accounts receivable and inventories. Less profitable firms wait longer to pay their bills.

Abstract: Where do firms turn for financing in countries with poorly developed financial markets? One source is trade credit. And where formal financial intermediaries are deficient, industries that rely more on this source of financing grow faster. Recent empirical work has shown that financial development is important for economic growth, since well-developed financial markets are more effective at allocating capital to firms with high-value projects. This raises the question of whether firms with high-return projects in countries with poorly developed financial institutions are able to draw on alternative sources of capital to offset the effects of deficient (formal) financial intermediaries. Recent work suggests that implicit borrowing in the form of trade credit may provide one such source of funds. Using the methodology of Rajan and Zingales (1998), Fisman and Love show that in countries with relatively weak financial institutions, industries with greater dependence on trade credit financing (measured by the ratio of accounts payable to total assets) grow faster than industries that rely less on such credit. Furthermore, consistent with the notion that young firms may not use trade credit, the authors show that most of the effect they report comes from growth in preexisting firms rather than from an increase in the number of firms. This paper has also been published in the Journal of Finance. This paper - a product of Finance, Development Research Group - is part of a larger effort in the group to study the determinants of access to finance.

Abstract: Recent empirical work has shown that financial development is important for economic growth, since well-developed financial markets are more effective at allocating capital to firms with high-value projects. This raises the question of whether firms with high return projects in countries with poorly developed financial institutions, are able to draw on alternative sources of capital, to offset the effects of deficient (formal) financial intermediaries. Recent work suggests that implicit borrowing, in the form of trade credit, may provide one such source of funds. Using the methodology of Rajan and Zingales (1998), the authors show that in countries with relatively weak financial institutions, industries with greater dependence on trade credit financing (measured by the ratio of accounts payable to total assets) grow faster than industries that rely less on such credit. Furthermore, consistent with the notion that young firms may not use trade credit, the authors show that most of the effect they report, comes from growth in preexisting firms, rather than from an increase in the number of firms.