Trade credit and corporate investment: enhancing value creation

Abstract

AbstractThis study explores the moderating role of trade credit in the value-creation process of firms. Through panel data analysis of annual data from publicly listed firms in ten developing Asian economies, we found that both investing in capacity expansion and engaging in trade credit activity positively impact the value creation process. However, the combination of capacity expansion and trade credit leads to enhanced value creation. The findings highlight the roles played by both borrowed and supplied trade credit in this process. By examining the role of trade credit as a catalyst between corporate investment and value creation, this study provides valuable insights for policymakers and practitioners. The results suggest that firms in these economies should consider increasing their trade finance activity to achieve higher value through capacity expansion. To ensure the validity of the findings, the study conducts a series of robustness checks, including alternative regression specifications, different measures of the key variables, and diverse sample compositions.Keywords: Alternative financingcorporate growthdeveloping economiestrade creditvalue creationJEL CLASSİFİCATİON: G01G30G32 Disclosure statementNo potential conflict of interest was reported by the authors.Notes1 The current research utilizes the term “growth” to denote the increase in value-added, which is computed using the following formula: growthijt= (EBITDAijt−EBITDAijt−1)EBITDAijt−1. Hence, the terms “value creation” and “growth” are used interchangeably, as has been demonstrated in studies by Ferrando and Mullier (2013) and Tingbani et al. (Citation2022).2 EBITDA, Sales and TC variables are adjusted for inflation.3 The difference GMM estimations are executed in Stata using the “xtabond2” command developed by Roodman (Citation2009).4 To avoid overcrowding this table, we will report the coefficients for the remaining control variables including once-lagged dependent variable in the next section in Table 2, while keeping the reader's attention focused on the key variables.5 All estimations are conducted with the rest of the explanatory variables, constant and times dummies.Additional informationNotes on contributorsBahadır KarakoçDr. Bahadır Karakoç is a finance scholar with a Ph.D. degree in the field. His research interests include corporate finance, corporate governance, financial management, and financial literacy. He has published several papers on these subjects, which have appeared in reputable peer-reviewed journals. He has been invited to speak at numerous conferences and seminars, where he has shared his insights on the latest developments in finance. He has also served as a reviewer for several academic journals. Currently, Dr. Karakoç is a faculty member at Samsun University, Economics and Finance Department, where he teaches finance courses to undergraduate and graduate students.