TRADE CREDIT AND FIRM PERFORMANCE: A REVIEW OF CLASSICAL LITERATURE

Firms with access to financial institutions credits have been found to extend more trade credits to customers. This is based on the fact that the firm is believed to have more information about the customers compared to external financiers. This conjecture points to the fact that the information advantage which the firm has over the conventional lenders like banks may have been due to regular and repeated interactions with the customers, sometimes on a personal level. Suppliers are more likely to offer more trade credit to customers with whom they have had long business relationship. From the standpoint of extant literature, this paper reviews the nexus between trade credit and firm performance. Based on the reviews, there seem to be a consensus that trade credit is positively related to firm performance. However, monetary policy stance is found to be a key determinant of trade credit supplies. This is because contractionary monetary policies are expected to have effects on trade credit relative to sales and ultimately have implications on firm profitability. JEL: F10, L20, L22 Article visualizations