Journal of Corporate Finance Vol. 29 2014
Reverse trade credit or default risk? Explaining the use of prepayments by firms
open access
Abstract
This paper provides a detailed empirical study on the use of advance payments by firms. It establishes that some trade credit theories can also be applied to prepayment. The results, obtained from a large panel dataset, suggest that a series of factors affect prepayments. First, financially stronger customers finance the production of their financially weaker suppliers. Second, advance payments also occur as a response to transaction risk in both domestic and international transactions. Finally, besides financial and warranty reasons, the trading partners' relative bargaining power influences payment terms as well.
- DOI
- 10.1016/j.jcorpfin.2014.09.009
- Volume
- 29
- Pages
- 303-326
- Language
- en
- Sources
- bibtex:phds-export.bib openalex openalex crossref