Trade credit, corporate business strategy and corporate life cycle

Abstract

This paper examines the association between trade credit and business strategy at various stages of the corporate life cycle. We contribute to the extant literature by analysing the mediating role of the firm life cycle in the interrelationship between the business strategy and trade credit. Using the Miles, Snow, Meyer, and Coleman (1978, 2003) typology to analyse 53,011 firm year-observations from 1987 to 2019, we find a positive association between business strategy and trade credit. Our findings indicate that defender (prospector) type firms have less (more) trade credit than analysers. When analysing this relationship with the corporate life cycle, we find a strong negative (positive) relationship between trade credit and the defender (prospector) at the introduction/decline stage but a positive (negative) relationship during the growth/maturity stage. Our results remain robust using different measures of trade credit and corporate business strategy, as well as various econometric specifications.