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“The Days to Pay Accounts Payable Determinants. Financing, Pricing Motives and Financial Substitution Effect. A Panel Data GMM Estimation From European Western Countries” 1
Justino Manuel de Oliveira Marquesa Associate Professor


Contact Data:

Justino Manuel de Oliveira Marques e-mail: Instituto de Estudos Superiores Financeiros e Fiscais Avenida Sanatórios, EdificoHeliântia 4405-604 Vila Nova de Gaia Portugal Telefono: 00351227538800 Teelfax: 00351227624590 e-mail:

September 2010

This is the 1st of 4 Essays from a Research Project called: “Essays on Corporate Finance Towards (Financial) Management Efficiency”.


“The Days to Pay Accounts Payable Determinants. Financing, Pricing Motives and Financial Substitution Effect. A Panel DataGMM Estimation From European Western Countries”

This paper proposes to elect the days to pay accounts payable determinants and our findings strongly support that the accounts payable problematic is closely related to short term financial decisions with a positive and significant influence of firm’s profitability and size factors. The existence of a firm’s negative working capital isconfirmed to influence strongly the reduction of the trade credit obtained from suppliers in Western Europe countries in parallel with a joint contribution of short and long term bank financing as a substitute from trade debt. Firm characteristics related to negative working capital and fixed assets level, jointly or alone, give more importance to the innovative role of short term bank financing onsubstituting or reducing the volume of trade credit obtained from suppliers which contradicts prior findings. Negative working capital reinforces the role of long term bank financing. It seems to induce the presence of a corporate cost reduction strategy to preserve or increment the firm’s market reputation and competition. The firm’s return on assets implies an enlargement of the days to payaccounts payable in line with a rising creditworthiness. All innovative and interacted variables are responsible for the reduction of the days to pay accounts payable and the confirmation of the financial substitution effect introduces more financing discipline compatible with firm’s cost reduction strategy and pricing motives included in a price discrimination strategy. Signs of future unbalancedcapital structure and financial distress may appear due also to the more banking financing justified by firm’s investment and negative working capital under finance motives point of view. The more firm’s growth the less trade credit obtained and, on the contrary, profitability and size contribute to facilitate the trade credit obtained from suppliers under finance and pricing motives point of view,more over the stability on terms trade credit. As important as the days to pay accounts and/or days sales outstanding determinants are future investigations related to trade credit duration gap as a synthesis of the prior trade credit issues and a starting point to evaluate internal corporate trade credit risk taking. Relevant research are also related to country and economic sector or countryunion analysis, as well. Classification: G30, G32, G39. Keywords: Trade Credit, Financing, Pecking Order, Growth, Profitability and Size.



1. Introduction
Corporate trade credit has been regarded as one of the most interesting and important topics in the finance field for a long time. This type of short-term financing is especially relevant not only among large publicly listedcorporations but also for small and medium-sized enterprises (SMEs). Some empirical evidence on the main determinants of a firm’s short-term debt, which includes trade credit as well as short-term bank financing and other short-term financing, is necessary given that firms follow a pecking order when they choose their sources of finance (Cosh and Hughes, 1994; Ang, 1991; Holmes and Kent, 1991). The fact...