This research was conducted while Lockhart was an Assistant Professor of Finance at the University of Nebraska-Lincoln. We thank Ken French for providing portfolio breakpoints and returns data via his website at Dartmouth University. We thank Richard DeFusco, Robert Van Ness (editor), two anonymous referees, Vinod Venkiteshwaran (discussant, 2011 FMA Annual Meeting), and Larry White for their comments. All errors remain sole responsibility of the authors.
Downstream Value of Upstream Finance
Article first published online: 8 OCT 2013
© 2013 The Eastern Finance Association
Volume 48, Issue 4, pages 697–723, November 2013
How to Cite
Hill, M. D., Kelly, G. W. and Lockhart, G. B. (2013), Downstream Value of Upstream Finance. Financial Review, 48: 697–723. doi: 10.1111/fire.12021
- Issue published online: 8 OCT 2013
- Article first published online: 8 OCT 2013
- trade credit;
- working capital;
- corporate liquidity;
We examine market value implications of managing liquidity via supplier financing. Results suggest a direct link between shareholder wealth and use of trade credit, and the relation exhibits significant cross-sectional variation. In particular, the market value of trade credit varies with the liquidity of goods sold and competition in product markets. Evidence also indicates the value-supplier financing association strengthens with financial constraint, which supports the financing motive for trade credit. Further findings are consistent with the transaction cost motive. Overall, we conclude that shareholders value the strategic benefits associated with supplier financing and that downstream firms’ characteristics influence this value.