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Accounts Receivable Management Policy: Theory and Evidence




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    • Assistant Professor, School of Business Administration, Emory University, Atlanta, Georgia and Clarey Professor of Finance, William E. Simon Graduate School of Business Administration, University of Rochester, New York, respectively. We thank two anonymous referees for the Journal, R. Stulz (the editor), M. Barclay, J. Brickley, H. DeAngelo, C. Harvey, S. Linn, R. McEnally, D. Mayers, E. Rasmusen, C. Smithson, P. Wier, and J. Zimmerman for comments and criticisms; and M. Zenner and F. Wright for research assistance. The research was partially supported by the John M. Olin Foundation, the Lynde and Harry Bradley Foundation and the Managerial Economics Research Center at the Simon School.


This paper develops and tests hypotheses that explain the choice of accounts receivable management policies. The tests focus on both cross-sectional explanations of policy-choice determinants, as well as incentives to establish captives. We find size, concentration, and credit standing of the firm's traded debt and commercial paper are each important in explaining the use of factoring, accounts receivable secured debt, captive finance subsidiaries, and general corporate credit. We also offer evidence that captive formation allows more flexible financial contracting. However, we find no evidence that captive formation expropriates bondholder wealth.

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