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Abstract

Trade credit is an important source of financing, and its proper management is essential to the survival and thriving of firms. Meanwhile, bank credit also plays as a critical funding source, especially in the setting of developing and emerging markets with high level of information opaqueness and low institutional quality. The current research examines the determinants of accounts payable using a sample of 590 firms listed in Vietnam from 2015 to 2022, focusing on the choice between bank credit and trade payables. We utilize panel data estimation methods, including the fixed effects model (FEM) and the random effects model (REM). The study provides evidence supporting the substitution effect between banks’ short-term and long-term loans and trade credit. Therefore, it is evident that many firms, when granted access to bank loans, exhibit a propensity to favor borrowing from banks rather than relying on accounts payable. The study differs from other similar studies by examining both short-term and long-term loans, rather than just short-term bank financing. Furthermore, the analysis of the moderating effect of financial constraints reveals that firms that less financially constrained firms seek more bank credit than trade credit. Again, this emphasizes the priority for bank loans over supplier financing, as well as the role of bank credit in a bank-based financial market such as Vietnam. We also find that cash holdings, annual revenue growth rates and firm size are significantly related to trade credit use. The results are robust throughout several robustness checks and the effort to control for the potential endogeneity issue. Based on the research findings, we offer implications for relevant stakeholders on managing of external financing, including both bank and interfirm financing.



Article Details

Issue: Vol 8 No Online First (2024): Online First
Page No.: In press
Published: Nov 1, 2024
Section: Research article
DOI:

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Creative Commons License

Copyright: The Authors. This is an open access article distributed under the terms of the Creative Commons Attribution License CC-BY 4.0., which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

 How to Cite
Liêm, N., Tran, A., Pham, T., Le, A., Le, T., & Nguyen, V. (2024). Bank credit and trade credit: The moderating role of financial constraints. Science & Technology Development Journal: Economics- Law & Management, 8(Online First), In press. Retrieved from https://stdjelm.scienceandtechnology.com.vn/index.php/stdjelm/article/view/1440

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