Prague Economic Papers 2019, 28(3):330-347 | DOI: 10.18267/j.pep.696

Determinants of Net Trade Credit: A Panel VAR Approach Based on Industry

Mara Madaleno^a, Nicoleta Bărbuţă-Mişu^b, Fitim Deari^c

^a GOVCOPP - Research Unit in Governance, Competitiveness and Public Policy and University of Aveiro, Portugal

^b "Dunarea de Jos" University of Galati, Romania

^c South East European University, Republic of Macedonia

This paper aims to study the dynamic relationship between dependent variables of trade credit (net trade credit to total assets and net trade credit to sales), and six independent variables (profit margin, liquidity ratio, and the dummies collection, credit, size, and crisis) using panel vector autoregression during the period 2004-2013 considering data from eight European countries. The results indicate that net trade credit is negatively influenced by crises, forcing firms to use it less due to survival effects but imposing higher trade restrictions. Notwithstanding, net trade credit to sales is positively influenced by the liquidity ratio and profit margin, and vice-versa, but has a negative relationship with credit and collection dummies, imposing credit shortenings and forcing reliance on short-term credit. For the overall period, firms seem to have sold more than having bought on credit due to tightening trade credit, an effect of the financial crisis.

Keywords: panel vector autoregression, profit margin, liquidity ratio, collection period, credit period, financial crisis

JEL classification: G01, G30, G32

Received: July 31, 2017; Accepted: April 30, 2018; Published: July 10, 2019  Show citation