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An agency model to explain trade credit policy and empirical evidence

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Pindado, Julio; Bastos, Rafael Rabelo

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Abstract This paper explains trade credit policy based on the agency theory. According to this theory we have developed an agency model based on the adverse selection and moral hazard phenomena arising from the relation between sellers and buyers. This model has been estimated by using panel data methodology applied to UK companies. Our findings strongly support the model proposed. We find that smaller firms, those with a smaller proportion of fixed assets, and those that are less profitable extend more trade credit, whereas firms with a high proportion of variable costs and high percentage of bad debts extend less.
Document language English
Publication Year 2008
Page/Pages p. 2631-2642
Journal Applied Economics, 39 (2008) 20
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)