The Role of Trade Credit in the Spanish Agrogood Industry

Trade credit is an important way of firm financing. Its habitualpractice and the excessive enlargement of the payment periods deteriorateprofitability of firms and even could affect the performance of the financialsystem. In spite of the relevance of this issue there are few empirical researcheswith Spanish firms. This work intends to fill this gap and to shed light on thefactors related to the extension of trade credit in a set firms of the agrofoodindustry. In the theoretic and empirical literature different motives have beenproposed to explain the extension of trade credit: a mechanism to reducetransaction costs, a financial alternative to the bank system and an additionaltool to improve commercial activities.To contrast these ideas a panel of 388 firms for the period 1998-2005 hasbeen taken, and static and dynamic regression models have been estimated byusing robust methods to heteroskedasticity, autocorrelation and endogeneityof the explanatory variables. The results confirm that trade credit receivableis associated with more active firms and with cheaper bank financing. Furthermore,a negative link with the size of the firm and a positive relationshipwith short-term liabilities, accounts payable and bank debts, are encountered.These findings are consistent with commercial perspectives, rather than apure financial view, in the sense that small and financial distressed producersextend trade credit as a way of promoting products and increasing sales.