Do the trade credit influence firm performance in agro-industry? Evidence from Thailand

Umawadee Detthamrong; Wirapong Chansanam

doi:10.1016/j.heliyon.2023.e14561

Do the trade credit influence firm performance in agro-industry? Evidence from Thailand

Heliyon. 2023 Mar 14;9(3):e14561. doi: 10.1016/j.heliyon.2023.e14561. eCollection 2023 Mar.

Authors

Umawadee Detthamrong¹, Wirapong Chansanam²

Affiliations

¹ Department of Business and Innovation Management, Faculty of Business Administration, Chaiyaphum Rajabhat University, Chaiyaphum, Thailand.
² Department of Information Science, Faculty of Humanities and Social Sciences, Khon Kaen University, Khon Kaen, Thailand.

Abstract

This paper aims to examine the relationship between trade credit and corporate performance. Empirical evidence on the impact of trade credit investment on firm performance remains unclear. For agro firms, the implications of this relationship have not been thoroughly discussed. Using a panel sample consisting of publicly listed agro firms in Thailand for 2001-2020. The sample set consists of 51 Thai-listed firms with 708 firm-year observations. We employ panel ordinary least squares (OLS) regressions and GMM regressions to obtain the estimation results. We find that going to invest in trade credit increases operating performance significantly, which is what the commercial, financing, and transaction theories of trade credit predicted would happen. Furthermore, cost-benefit analysis should serve as a guide for firms' trade credit investment decisions. In particular, firms should be aware of the extra cost of trade credit investment and weigh it against the benefits of improved performance.

Keywords: Agro firms; Corporate performance; FSIZE, Firm size; GDP, economic growth; GMM, generalized method of moments; LEV, Financial leverage; LQD, liquidity; OLS, ordinary least squares; ROA, Return on Assets; ROE, Return on Equity; SGR, sales growth; SMEs, small and medium-sized enterprises; TC, Trade credit; TC2, The square of trade credit; Thailand; Trade credit; Trade credit investment.