Financial Sustainability And Trade Credit

Financial sustainability and trade credit

Nicoleta Bărbuță-Mișu 1,†

1 “Dunărea de Jos” University of Galați, Faculty of Economics and Business Administration, Galati, România, [anonimizat]

* Correspondence: [anonimizat]; Tel.: +40-336-130-250

Abstract: Trade credit represents one of the most flexible short-term financing sources for companies, covers a significant part of the financial resources of companies and it makes available financial resources to achieve other economic objectives. The incentive to increase or reduce trade credit offered and received is influenced by the financial performance of the companies. Thus, major aim of the present study is to analyse the correlation between some components of the financial performance and to find if these components have impact on incentive to use trade credit by companies selected from construction sector. To achieve this aim, the data of 958 European firms acting in the construction sector between 2004 and 2013 were analysed using correlation and OLS regression. From the study we found the following main results: a weak positive relationship between profitability and trade credit offered, a weak positive relationship between return on equity and trade credit received; a positive relationship between liquidity ratio and trade credit offered; banking loans are an alternative sources of finance that might allow firms to offer trade credit while continuing production by customers and suppliers, and firms with low access to bank loans increase the incentive to use trade credit received; there is a positive relationship between firm size and trade credit offered and received.

Keywords: trade credit receivable; trade credit payable; return on equity; return on assets; current liquidity ratio, liquidity ratio, banking-loans ratio; firm size.

1. Introduction

Trade credit provides one of the most flexible short-term financing sources for companies. Additional features of trade credit packages include the amount of loan that the company could obtain if the amount is paid delayed into account and if discounts are applicable for payments in advance. The duration of trade credit offered depends on the following factors: customs and industrial practice, the relative bargaining power and the product type (Pike and Heale, 2006).

Trade credit designates a deferred payment granted by a supplier of goods or services to the customer. Granting a commercial credit by the supplier implies, however, financial difficulties for him, but trade credit policy promoted by the company has a particular importance in meeting its current operating needs.

In developed economies, trade credit covers a significant part of the financial resources of companies. Although trade credit represents a large part of its balance sheet, it does not seem to be an important net source of funding, nor to large companies nor to small ones (Petersen and Rajan, 1997). But trade credit can be an important source of funding for some firms or categories of firms or sectors of industry (Zackrisson, 2003).

Emery (1988) presents the typology of reasons for extending trade credit offered in four categories: operational reasons, generated by the fluctuation in demand and the need for its homogenization; reasons related to the contract cost, respectively its reduction, by creating trust between seller and buyer, testing the quality of goods and determination the quantities ordered over bargaining power; reasons related to price, the price changing being possible through trade credit policy or other credit policies, especially when there are formal or informal restrictions of maximizing profits through price; and financial reasons, the seller really granting a credit to the buyer, which can make financial investments, generate interest income or use the credit to finance production and / or business development. Thus, Chant and Walker (1988) argues that trade credit is a way by which firms with immediate access to funding can transfer the capital to firms that experiencing increased funding costs.

We investigate the incentive to use trade credit in this paper because it is an important source of funding for companies, that presents many advantages: rapidity, availability and flexibility in use; usually, providers do not require any guarantees, they being in practice more understandable than banks in terms of any overrun of maturity; it is more appealing to small and medium enterprises since, most often, they do not enjoy the same treatment from banks as large firms; it is conveniently obtained as a normal part of the company's operations, expanding of trade credit determining the development of contracts for the needs of the firm; it is a relatively cheap source of financing for current activity; it makes available financial resources to achieve other economic objectives; knowing payment due allows developing a realistic cash flow, necessary to obtain other funding sources; providers have better possibilities for monitoring and forcing the customer to pay debts than financial institutions; provider may have relevant information about the financial position of the customer; the aim of the provider is not to make money from financial agreement but to make profit from the sale of goods; also, provider may offer favourable terms of payment in order to maintain a long term relationship with the customer.

We must not overlook the fact that there are some risks arising from the use of trade credit: increasing short-term debt will have negative effects on the creditworthiness of the company; there are risks both to the supplier and the customer in case of not fulfilling the contracts and / or payments; and poor valorisation of inventories purchased through trade credit leads to complex financial difficulties.

All these advantages and risks affect financial viability and performance of the companies. Financial viability is defined as the generation of sufficient profit or surplus such that companies are willing to continue to provide goods or services, albeit the parameters of what defines sufficient profit will differ according to organisational mission (Baldwin et al., 2013). Viability is sustainable where continuity in planned balanced inflows and outflows is reasonably achievable in the longer term (usually beyond 5 years) under changing conditions (Hayes, 2013).

The major aim of the present study is to check if there is a correlation between selected components of the financial performance and if these components have impact on incentive to use trade credit by companies selected from construction sector. To achieve this aim, the data of 958 European firms acting in the construction sector between 2004 and 2013 were analysed using correlation and OLS regression. This study is the first approach to analyse the correlation between financial performance components and incentive to use trade credit by companies acting in the construction sector.

The companies from construction sector were selected because it is a sector less studied related to incentive to use trade credit, the majority of studies being oriented to manufacturing sector. Also, this is the sector where the downturn in activity within the EU-28 lasted longer than for industry. Despite occasional short-lived periods of growth, the EU-28 index of production for construction fell from a peak in February 2008 to a low in March 2013, a decline that left construction output 26.2 % lower than it had been. Construction output expanded by a total of 7.6% until April 2014 and in July 2015 output remained relatively stable (Eurostat, 2015).

The model would be a useful tool for decision making of extending or reducing trade credit used by construction companies in function of their financial performance. The paper contributes to the managerial approach of trade credit and is organized as follows. Section 2 presents the literature review related to trade credit and financial performance and section 3 reflects the data, methodology and hypotheses development. Section 4 reflects the descriptive statistics and correlations followed by the regression analysis and results in section 5 and final conclusions in the section 6.

2. Literature review

We know that in economies with well-developed financial institutions is better to allocate resources to projects that yield the highest returns. But, for firms in poorly developed financial markets, the borrowing in the form of trade credit may provide an alternative source of funds (Fisman and Love, 2003).

The concept of trade credit explains relationships between the firm, its customers and suppliers. Seifert et al. (2013) realized a deep review of trade credit literature, from micro and macroeconomic perspectives, focused on motives of the studies, country, characteristics of the sample, methodology used (equilibrium models, panel-data regressions, optimization model and survey) and the findings. Testing the existence of a trade credit channel of transmission of monetary policy Guariglia and Mateut (2006) found that both the credit and the trade credit channels operate in the UK, and that the latter channel tends to weaken the former. Metzler (1960) argued that large firms use trade credit instead of direct price reductions to push sales in periods when monetary conditions were tight and firms would accumulate liquid balances in periods of loose monetary policy and utilize these to extend trade credit in periods when monetary conditions were tight. Also, during tight monetary periods, trade credit operates mainly as a substitute for bank borrowing while during looser monetary episodes even when the economy is weak, trade credit and bank loans are dominated by a complementary effect (Yang, 2011).

By panel-data regressions, the main findings were: firms end up using a mix of trade credit and bank loans trade (Yang, 2011), credit reduces treasury uncertainties (Brennan et al., 1988), trade credit can be a substitute for loans for firms that were shut out of formal credit markets (Cull et al, 2009); trade credit can be both a substitute for and a complement to bank credit (Chant and Walker, 1988; Yang, 2011), trade credit is a complement to bank credit (Ono, 2001), trade credit offers control benefits in the early stages of a venture (Huyghebaert, 2006).

There is no a fixed level of accounts receivable and payable that firm should has, this level being affected by many factors: suppliers' willingness to price discriminate, information asymmetry between suppliers and customers, market structure, stages of business cycles, and customers' creditworthiness (Altunok, 2011). Usually, both financial and commercial motives explain the credit behaviour of firms and suppliers act as financial intermediaries in favour of companies with a limited access to bank credit (Delannay and Weill, 2004).

Firms with better access to credit offer more trade credit (Petersen and Rajan, 1997) and larger firms, with better access to alternative internal and external financing and with a lower cost, use less credit from suppliers (Garcia-Teruel and Martinez-Solano, 2010). When lending becomes less severe, the allocation of lending became more efficient, and the amount of trade credit extended by private firms declined (Cull et al., 2009). Nilsen (2002) found that: small firms increase trade credit, a substitute credit, indicating a strong loan demand; trade credit is widely used by the small firms suffering the loan decline; the reasons large firms use trade credit are financial in nature.

In the countries with poorly developed financial institutions, compared to state owned firms, non-state owned firms use more trade credit, and this higher usage is primarily for financing their prosperous growth opportunities rather than transactional purposes (Ge and Qiu, 2007). Poorly performing state-owned enterprises are more likely to redistribute credit to firms with less privileged access to loans via trade credit (Cull et al., 2009). Fisman and Love (2003) show that, industries with higher dependence on trade credit financing exhibit higher rates of growth in countries with weaker financial institutions, and that most of the effect reported comes from growth in the size of pre-existing firms, consistent with barriers to trade credit access among young firms.

Firms with direct access to capital markets both extend more and receive less trade credit during a recession (Kohler et al., 2000). Studying the behaviour of trade credit around the time of financial crises, Love et al. (2007) found an increase in trade credit at the peak of financial crises, followed by a subsequent collapse of trade credit right after crisis events. Coulibaly et al. (2013) explored the extent to which financial conditions contributed to the decline in firms' sales during global financial crisis and found that: financial conditions adversely affected sales during the crisis; the use of trade credit played an important role in the relative performance of firms.

Firms use the trade credit channel to manage growth and companies that are more vulnerable to financial market imperfections, and therefore more likely to be financially constrained, rely more on the trade credit channel to manage growth (Ferrando and Mulier, 2013). Also, firms prefer to delay collection from their customers then demand long-term trade credit from their suppliers and firms that present high levels of days-of-sales outstanding and a high probability of insolvency use more trade credit (Bastos and Pindado, 2013), these relations being enhanced during a financial crisis.

The effect of financial deepening on the relationship between trade credit and cash holdings show that firms in regions with higher levels of financial deepening hold less cash for payables while substituting more receivables for cash and a more highly developed financial sector helps firms to better use trade credit as a short-term financing instrument (Wu et al., 2012).

Regarding to the relationship between profitability and trade credit use, the profitable private firms are more likely to extend trade credit than unprofitable ones (Cull et al., 2009). Related to the role of trade credit links in generating cross-border return predictability between international firms was found that firms with high trade credit located in producer countries have stock returns that are strongly predictable based on the returns of their associated customer countries (Albuquerque et al., 2015).

Bougheas et al. (2009) achieved a model that identifies the response of accounts payable and accounts receivable to changes in the cost of inventories, profitability, risk and liquidity and they found that this influence operates through a production channel. Albuquerque et al. (2015) developed an asset pricing model in which firms in different countries are connected by trade credit links that offers stronger predictability during periods of high credit constraints and low uninformed trading volume.

In this paper we investigate the influence of the financial performance on incentive to use trade credit for companies acting in the construction sector. The study of company performance is an interesting topic, since it is closely connected with the main objective of increasing the company’s value. The company performance was studied for many sectors, such as iron and steel industry (Ma et al. 2002), construction (Bărbuță-Mișu, 2009), agriculture (Latruffe et al. 2008; Chen et al. 2008), manufacturing (Zhang et al. 2014), transportation (Odeck 2006, 2008; Fung et al. 2008; Chen et al. 2008; Barros and Peypoch 2009), retail (Yua et al. 2014), hotels industry (Leea et al. 2007; Chen and Chang 2012), banking (Ongore and Kusa 2013; Mukherjee et al. 2001; Swarnapali 2014; Shah and Jan 2014), insurance companies (Adam and Buckle 2003; Ismail 2013; Burca and Batrînca 2014).

Financial performance for construction companies was often evaluated with a composite indicator, which usually incorporates measures such as profitability, value added and financial autonomy (Horta et al. 2012), liquidity (Gurbuz et al. 2010; Horta et al. 2012), ownership structure and risk management (Mirza and Javed 2013; Saliha and Abdessatar 2011), capital structure (Mirza and Javed 2013), debt (Saliha and Abdessatar 2011), size (Love and Rachinsky 2007) or sales (Forbes 2002; Shah and Jan 2014). Also, four most well-known web-based benchmarking programs focused on construction companies’ performance measurement are carried out in Brazil, Chile, United Kingdom and United States (Ramirez et al. 2004; Lee et al. 2005; Costa et al. 2006).

Return on assets and return on equity are the most important profitability measures, and express the compensation for the capital invested by shareholders and financial creditors. A business that has a high return on equity is more capable to generate profit (Ongore and Kusa, 2013) and cash internally. Also, a higher return on assets indicates company management’s efficiency of generating profits from overall company’s resources (Khrawish, 2011).

Usually, it was analysed if the changes in trade credit have influence on financial performance. For examplem, Kroes and Manikas (2014) found that reductions in days of sales outstanding lead to improved company financial performances, whereas changes in cash conversion cycle did not actually relate to company performances’ changes.

The analysis of financial performance is based on accounting data, that are the results achieved by the activity, environment, organizational motivations, organizational capacity and organizational performance in general. Viability of the company is largely based on maintaining stakeholders’ reasonable expectations, forecasts and confidence in the future (Hayes, 2013).

Expressing the financial performance by final main indicators used in the literature, we try to investigate if there is a correlation between trade credit and financial performance. We argue that financial performance alters the incentives for companies to extend and receive trade credit through four variables: profitability, liquidity, long-term funding and firm size.

3. Data, methodology and hypotheses development

Our main data source is the balance sheet and profit and loss account, data gathered by Bureau van Dijk in the Amadeus database. There were selected companies acting in construction sector (buildings, bridges and tunnels, other civil engineering projects, roads and railways, underground railways), between 2004 and 2013, from 8 countries from EU-28: Belgium, Germany, France and Netherlands, Romania, Bulgaria, Poland and Hungary, countries where the average fluctuations of annual growth rates for construction was appropriate. The construction industry has been criticized for its underperformance, triggering a high need for performance improvement and measurement (Latham 1994; Egan 1998; Wegelius-Lehtonen 2001).

Related to the distribution per country of firms’ observations we can observe that Romania (20.64%), France (17.47%), Bulgaria (15.80%) and Belgium (14.76%) are countries with more observations, while rest with less (31.33% together), the lower number of observation being registered by Hungary with 4.59%. The number of annual observations depends on the availability of data provided by Amadeus database. We includes in the sample only companies that have reported data in the interval analysed (minimum on 5 years), resulting 8473 firm–year observations, organizes as unbalanced panel-data, from 958 companies, over the time period 2004 – 2013.

For this research were studied more than twenty indicators of trade credit and financial performance reflected by profitability, liquidity, gearing, financing, activity and firm size and we selected 4 relevant factors for study the incentive to extend and receive trade credit: profitability analysed with return on equity and return on assets, liquidity analysed with current ratio and liquidity ratio, financing analysed with long-term financing and firm size (Figure 1).

Figure 1. Components of financial performance that may influence the incentive to use trade credit

The literature explored trade credit using as dependent variable: accounts payable/total assets, accounts payable/turnover, (accounts payable – accounts receivable)/total assets (Mateut et al., 2015), (accounts payable – accounts receivable) / sales (Ge and Qiu, 2007); trade credit provided (trade receivables per sales), trade credit obtained (trade credit payables per cost of goods sold) and net trade credit (difference between trade receivables and payables scaled by sales (Alatalo, 2010) or trade receivables divided by total assets and trade payables divided by total assets (Grave, 2011). In our study we use as dependent variables Trade_Receiv (trade receivable share) defined as the proportion of trade receivables (debtors) in total assets and calculated as trade receivables scaled by total assets and Trade_Payab (trade payable share) defined as the proportion of trade payables (creditors) in total assets and calculated as trade payables scaled by total assets.

Profitability is expressed by 2 rates: ROE (return on equity) defined as net income divided to shareholder funds and ROA (return on assets) defined as net income divided to total assets. Woo and Willard (Woo and Willard, 1983) have slated that such measures of profitability as return on assets and return on equity are essential to measurement of strategic performance, although they have some limitations (Dearden, 1969).

The return on equity measures the profitability of shareholders’ capital that is the financial investment made by shareholders when buying the enterprise shares and is influenced by the way of asset securing and, thus, by the financial structure of the enterprise (La Bruslerie, 2002). The return on equity quantifies the remuneration of capital invested by shareholders, including the net profit at the disposal of the enterprise for self financing (Lumby and Jones, 2003). The return on equity is the most relevant variable, ensuring the best predictions of performance, fact demonstrated also by Zmijewski (1983) in a study performed on 75 enterprises filing for bankruptcy, and 3.573 non-bankrupt enterprises. For owner, this is the most expressive parameter for measuring the result as it is superior (as compared to owner’s concern) to economic profitableness, to expenses or turnover (Bărbuță-Mișu, 2009).

The return on assets show the profitability of a company, relative to its total assets, that is how efficient is management at using its assets to generate earnings. So, return on assets is distinguished from return on equity, with the difference attributed to leverage (Nissim and Penman, 2001).

Although regarding to the relationship between profitability and trade credit use, Cull et al. (2009) mention that the profitable firms are more likely to extend trade credit than unprofitable ones. But, related to the specificity of construction sector, we consider the first hypothesis:

H1: The profitability is positively correlated with trade credit extension.

That means firms with high profitability increase / extend trade credit offered and receive more trade credit. We must check if this hypothesis is available for both form of expressing profitability: ROE and ROA.

Liquidity is expressed by 2 rates: Current_rat (current liquidity ratio) defined as current assets scaled by current liabilities and Liquid_rat (liquidity ratio) defined as current assets minus inventories and accounts receivable scaled by sales.

Current liquidity ratio measures the capacity of cash flow of the enterprise that is short term solvency and reflects the degree in which the turning into cash flow of circulating actives can satisfy the current payment obligations (Bărbuță-Mișu, 2009). Liquidity ratio that measures the current assets excluding inventories and trade credit extended over turnover is included in the analysis because the supplier's incentive to shift goods to the customer via trade credit is limited only by its need to obtain liquidity to meet its own obligations (Mateut, 2015).

H2: Firms with high current liquidity offer less trade credit and receive more trade credit.

That means companies that have high values of current liquidity are confronted with high values of accounts receivable because incentives to increase turnover selling on credit, granting long terms of payments for sales on credit, or what is worrying, the weak policy to a poor debt recovery policy. In these conditions, for safety, in the next period the company will reduce the trade credit accorded and will be focused on debt recovery.

In the same time, the firm that have high values of current liquidity will try to balance the high differences between current assets and current liabilities, using more trade credit payable.

H3: Firms with high liquidity offer more trade credit and receive less trade credit.

This hypothesis show that companies with high liquidity ratio may offer in the future more trade credit, extending the credit period and attracting new clients by this facility in order to increase turnover, while will receive less trade credit because they have cash to pay debts and benefits the discount offered by the supplier.

The access to financing on long term play an important role in trade credit extended or received. Long-term financing may be a substitute or complement of trade credit as we reflected in the preview section. The amount of long-term bank loans and the access to this external funding is influenced by firm profitability, liquidity and ownership (Ge and Qiu, 2007; Fabbri and Klapper, 2013; Guariglia and Mateut, 2013). These banking loans represent the sources of finance that might allow firms to offer trade credit while continuing activity (Mateut et al., 2015). The variable used in our study LT_bank_loan is defined as long-term banking loans scaled to total assets.

H4: Firms that use more long-term banking loans offer more trade credit and receive less trade credit.

This hypothesis show that companies with a high proportion of long-term debts in total liabilities offer more trade credit for increasing the turnover and profit while the same firms receive less trade credit because their high degree of debts.

Firm size is expressed with the variable Firm_size that can be analysed related to sales or total assets. In our study we define firm size as natural logarithm of total assets.

H5: Firm size is positively correlated with trade credit offered and received.

This hypothesis shows that large firms offer and receive more trade credit than small firms.

4. Descriptive statistics and correlations

Descriptive statistics presented in the table 1 include number of observations, mean, standard deviation, minimum and maximum. From table 1 result that the proportion of accounts receivable in total assets is 32% whereas the proportion of trade payable in total assets is 24%. This means that firms offered more trade credit than received. Return on equity is higher in average than return on assets, that means shareholders funds represents 29.61% of total assets, and liabilities represents 70.29% of total assets, showing that companies function with a capital structure high indebtedness.

Table 1. Descriptive statistics

Current liquidity is in average 0.73, lower than favourable values (0.8-1.00) that means companies studied has a low current liquidity, that is a low capacity to pay debts, but not so low taking into account that the average ratio is closed to the minimum limit of the favourable interval. Liquidity ratio is 0.11 in average, also lower than favourable values (higher than 0.30) that means companies has a reduced capacity to pay short-term debts by existent cash and cash equivalents. Long-term debts represents in average 14% of total assets, that show companies not use too much long term debts to finance their activity.

Table 2 reports the correlation table for trade credit offered and received for all companies included in the sample. The coefficients are fairly low and statistically significant. Most of them have the expected sign. However, these are simple pairwise correlation coefficients.

Table 2. Correlation table – trade receivable and payable

The result shows that: there is a positive correlation between trade receivables and trade payables that mean the increase in trade receivable determine the increase in trade payable and inverse; firms with high ROE use more trade receivable and payable, and firms with high ROA use less trade receivable and payable; firms with high current liquidity use less trade receivable and payable; firms with high liquid ratio use more trade receivable and less trade payable; firms with long-term debts use less trade receivable and payable; large firms use more trade receivable and payable.

5. Regression analysis and results

In this section we perform a regression analysis. Before performing the regression analysis data were checked for outliers, leverage and influential observations. Hence, observations number is reduced to 7540.

Regression models are performed based on two depended variables: trade credit receivable and trade credit payable. Independent variables are considered components of sustainable performance: profitability with ROE and ROA, liquidity with current liquidity and liquidity ratio, long-term banking loan and firm size.

The initial generalized regression model used in this study is:

where, TCit = dependent variables: Trade_receiv and Trade_payab;

t = time; t = 1 to 10, and

FSkit = independent variables, that is components of financial sustainability: ROE, ROA, Current_rat, Liquid_rat, LT_bank_loan and Firm_size, k = 1, 2, 3, …, 6.

Normality of residuals was checked with Shapiro-Wilk W test for normality and we found that for both trade receivables and payables regression models p-values is 0.872 and respectively 0.837. So, results are higher than 0.05 and indicates that the null hypothesis is true and the residuals are normally distributed. Homoskedasticity of residuals was checked using Cameron & Trivedi's decomposition of IM-test and Breusch-Pagan / Cook-Weisberg test for heteroskedasticity. For these tests, trade receivables and payables regression models p-values were higher than 0.05 (0.807 and 0.798; 0.779 and 0.756), indicating that the variance of the residuals is homoskedastic.

Multicollinearity for both models was checked using Variance Inflation Factor (VIF). Results indicated that in case of trade receivables and payables mean of VIF is 4.04 (table 3). Hence, mean of VIF per each model is lower than 10 indicating thus that multicollinearity is not evident.

Table 3: Variance Inflation Factor

Three models were run based on Trade_receiv and Trade_Payab: Ordinary Least Squares regression (OLS), fixed effects model (FE) and random effects model (RE). Results of each model are presented in table 4.

Table 4: Regression models for Trade_receiv and Trade_payab

* p<0.05, ** p<0.01, *** p<0.001

From tables 4 referred to Trade_receiv and Trade_payab we can see OLS model approximate well the real data points, R2 being 41,25%, higher than 30%. The fixed effects model (FE) and random effects model (RE) doesn’t approximate well the real data points.

Analysing the OLS model we found that there is a positive relationship between trade receivable and ROE, ROA (that means H1 is accepted for trade receivable), liquidity ratio (H3 is accepted for trade receivable) and firm size (H5 is accepted for trade receivable), and a negative relationship between current liquidity ratio (H2 is accepted for trade receivable) and long-term banking loan ratio (H4 is rejected for trade receivable).

A positive relationship was found between trade payable and ROE (H1 is accepted for trade payable), liquidity ratio (H3 is rejected for trade payable) and firm size (H5 is accepted for trade payable) and a negative relationship between ROA (H1 is rejected for trade payable), current liquidity ratio (H2 is rejected for trade payable) and long-term banking loan ratio (H4 is accepted for trade payable).

6. Conclusions

The purpose of the present study is analysing the correlation between some components of the financial performance and their influence on incentive to use trade credit by construction companies.

There were proposed some hypotheses in function of the results found in the literature and financial position of the companies included in the sample. Overall, companies acting in construction sector offer in average 32% trade credit to their customers and receive 24% trade credit from their suppliers, registered a good profitability reflected on ROE and ROA, facing small problems of liquidity, the ratios registered being close to the minimum value considered favourable and use in a small measure banking loans on long-term as also found Mateuț et al. (2015).

From the study we found a weak positive relationship between profitability and trade credit offered, that means firms with high return on equity and return on assets offer more trade credit as also found Cull et al. (2009) and a weak positive relationship only between return on equity and trade credit received, that means firms with high return on equity receive more trade credit, but firms with high return on assets receive less trade credit. We detected a positive relationship between liquidity ratio and trade credit offered and received by construction sector firms, as well as Garcia-Appendini and Montoriol-Garriga (2013) that found firms with higher levels of liquidity increased the trade credit extended to other firms in the financial crisis period, while cash-poor firms reduced trade credit. It is a similar result taking into account that the period studied in this paper is 2004-2013, including the period of financial crisis, while other authors found a negative relationship between firms' liquidity and their volume of credit sales (Petersen and Rajan, 1997; Mateut et al., 2015), authors that included in the sample firms from all sectors of non-financial activity.

Related to our sample, we found that firms rely on bank loans to finance production in proportion of 14%, in average. From this study results that there is a negative relationship between long-term banking loans ratio and trade credit offered and received that means banking loans are an alternative sources of finance that might allow firms to offer trade credit while continuing production (Mateut et al., 2015) by customers and suppliers. Although we proposed a positive relationship between banking loans and trade credit offered, that means firms with better access to banking finance may have incentives to increase trade credit offered (Cull, 2009; Petersen and Rajan, 1997), but our hypothesis was rejected, that means firms that use less bank loans may have incentive to increase trade credit offered; instead is valid the hypothesis that firms with low access to bank loans increase the incentive to use trade credit received. Finally, we found that there is a positive relationship between firm size and trade credit offered and received, that means large firms are easy credited by other companies and have the capacity to finance other customers.

Our study suggests that managers need to pay more attention when decide extending the trade credit, and decision making must be done after the deep analysis of financial performance of the company, taking into account that financial viability is the finality of all internal and external factors that contributed to business development: environment, organizational motivations, organizational capacity and organizational performance. Investors and stock analysts can benefit from the findings of the present study, because the findings would enable them to better assess the financial performance of the companies where they invested capital and intent to make better investment decisions. Business partners can gain benefits because the extension or reduction of trade credit offered or received provides relevant information about the financial position of customers and providers. For further researches, the financial performance influence on trade credit extension will be studied taking into account new components of the financial sustainability, i.e. solvency, assets sustainability, and including in the sample companies acting other sectors of activity.

Acknowledgments: This work was supported by the SOP IEC, under Grant SMIS-CNSR 1815-48745, no. 622/2014.

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