Trade credit dynamics during the phases of the business cycle – a value chain perspective
Published online on May 24, 2016
Abstract
Supply Chain Management: An International Journal, Volume 21, Issue 3, Page 363-380, May 2016.
Purpose The purpose of this paper is to provide evidence of how the business cycle affects net-trade-credit and its components in firms on different tiers of the value chain, including retail, wholesale and two consecutive manufacturing tiers. Design/methodology/approach Data were collected by the means of four surveys in the years 2006, 2009, 2012 and 2014, representing different phases of the business cycle, that is, from strong economic growth to a deep recession and on to slow recovery and finally into decline. Descriptive statistics and three ANOVA models were used in the analysis of the data. Findings The distinctive profile of each value chain tier appears to have an effect on tier-specific trade credit dynamics. Overall, upstream positioned firms and small firms are likely to experience a decline in the net-trade-credit during uncertain economic times. The type of task interdependence between tiers also appears to affect trade credit dynamics in some tiers of the value chain. Furthermore, initiated by recession, certain trade credit dynamics in the value chain suggest a mechanism that transmits an increased working capital burden from customers to suppliers along the value chain. Research limitations/implications Results are based on survey research with a limited amount of respondents and geographical coverage, implying limited generalisability. The use of implicit measures limits the conclusiveness of the research. Originality/value The conventional perception of the power-based determination of trade credit policies is complemented with a value chain-related task interdependence perspective. The results of this paper also highlight that a more holistic value chain perceptive on working capital management would be more sustainable in comparison to firm-centric approaches.
Purpose The purpose of this paper is to provide evidence of how the business cycle affects net-trade-credit and its components in firms on different tiers of the value chain, including retail, wholesale and two consecutive manufacturing tiers. Design/methodology/approach Data were collected by the means of four surveys in the years 2006, 2009, 2012 and 2014, representing different phases of the business cycle, that is, from strong economic growth to a deep recession and on to slow recovery and finally into decline. Descriptive statistics and three ANOVA models were used in the analysis of the data. Findings The distinctive profile of each value chain tier appears to have an effect on tier-specific trade credit dynamics. Overall, upstream positioned firms and small firms are likely to experience a decline in the net-trade-credit during uncertain economic times. The type of task interdependence between tiers also appears to affect trade credit dynamics in some tiers of the value chain. Furthermore, initiated by recession, certain trade credit dynamics in the value chain suggest a mechanism that transmits an increased working capital burden from customers to suppliers along the value chain. Research limitations/implications Results are based on survey research with a limited amount of respondents and geographical coverage, implying limited generalisability. The use of implicit measures limits the conclusiveness of the research. Originality/value The conventional perception of the power-based determination of trade credit policies is complemented with a value chain-related task interdependence perspective. The results of this paper also highlight that a more holistic value chain perceptive on working capital management would be more sustainable in comparison to firm-centric approaches.