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Trade credit and risk of insolvency

Author

Listed:
  • Galya Taseva-Petkova
Abstract
The article analyzes the relation between the use of trade credit and risk ofinsolvency of nonfinancial enterprises in Bulgaria. Data from empiricalsociological examination among 201 nonfinancial enterprises are used. Theresults confirm the financial distress theory of trade credit. It was found out thatfirms that are financially constraint use more credits from suppliers andfinancially stable firms are prone to wait longer before taking measures in caseof payments delay from clients. It is also found that postponed accountreceivables create serious liquidity problems for enterprises and difficulties inpaying basic expenses for their activity. One of the conclusions from theinvestigation is that for a number firms, trade credit is a source of financingfrom last resort, because difficulties in paying to suppliers and problems withdelayed account receivables are indicators of insolvency risk of firms.

Suggested Citation

  • Galya Taseva-Petkova, 2015. "Trade credit and risk of insolvency," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 77-100,101-.
    • Handle: RePEc:bas:econth:y:2015:i:4:p:77-100,101-121
    as

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    References listed on IDEAS

    as
    1. Smith, Janet Kiholm, 1987. "Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-872, September.
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    9. Cole, Rebel, 2010. "Bank credit, trade credit or no credit: Evidence from the Surveys of Small Business Finances," MPRA Paper 24689, University Library of Munich, Germany, revised 15 Mar 2010.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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