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Trade Credit Management and the Decision to Use Factoring: An Empirical Study

Trade Credit Management and the Decision to Use Factoring: An Empirical Study This paper examines the firm's decision to use factoring amongst a cross‐sectional sample of 655 manufacturing companies using a rich firm‐level database. The paper develops and tests hypotheses that explain this particular choice of credit and financial management policy. We find strong evidence of a ‘financing demand’ explanation for the use of factoring, and also some support for theories which relate the decision to use a factor to the firm's product characteristics, to market characteristics and to the preferences of the factor (supply constraints). The motivation to use factoring, however, appears to be related more to a demand for asset‐based finance from small companies than to firm‐level choices about organisational structure. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Finance & Accounting Wiley

Trade Credit Management and the Decision to Use Factoring: An Empirical Study

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Publisher
Wiley
Copyright
Copyright © 2000 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0306-686X
eISSN
1468-5957
DOI
10.1111/1468-5957.00305
Publisher site
See Article on Publisher Site

Abstract

This paper examines the firm's decision to use factoring amongst a cross‐sectional sample of 655 manufacturing companies using a rich firm‐level database. The paper develops and tests hypotheses that explain this particular choice of credit and financial management policy. We find strong evidence of a ‘financing demand’ explanation for the use of factoring, and also some support for theories which relate the decision to use a factor to the firm's product characteristics, to market characteristics and to the preferences of the factor (supply constraints). The motivation to use factoring, however, appears to be related more to a demand for asset‐based finance from small companies than to firm‐level choices about organisational structure.

Journal

Journal of Business Finance & AccountingWiley

Published: Jan 1, 2000

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