Three essays on trade credit theory and empirical evidence from agro-food firms in Africa and United States
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[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT AUTHOR'S REQUEST.] In a quest to understand the motives for use of trade credit in inter-firm trade, many theories have been put forward. The empirical literature on trade credit are largely focused on understanding firms' motives for use of trade credit, by testing these theories with micro- and macro-level data. Against the background that the extent and motives for use of trade credit in the agro-food industry is less understood, this dissertation extends the frontiers of knowledge on trade credit use by examining trade credit theories and empirical evidence from agro-food firms in Africa and the United States. The dissertation consists of three essays. The first essay examines trade credit contracts, trade credit theories and empirical evidence in support of or otherwise of the theories via review and analysis of the theoretical and empirical trade credit literature. The second essay examines the motives for trade credit supply in the African agro-food manufacturing industry, employing survey data from eight African countries -- Burundi, Malawi, Mauritania, Namibia, Nigeria, Senegal, South Sudan and Sudan. Premised on the fact that there are benefits and costs of investing in trade credit, the third essay examines investment in trade credit and firm profitability, using a panel of listed agro-food firms in the United States for the period 2001-2014. The review in essay one revealed a high use of trade credit in inter-firm trade, with variations across countries and industries. It is revealed that trade credit contracts are simple in nature and factors such as the shortness of credit periods, frequency of transactions, close proximity and interaction between suppliers and customers, and effective informal enforcement mechanisms may account for the simplified nature of trade credit contracts. However, the use of trade credit is a multidimensional phenomenon, driven by varied yet interconnected motives, thus making it complex to put forward a single theory to explain the use of trade credit in interfirm trade. Contrary to a long-held notion that trade credit is expensive relative to bank credit, evidence from the empirical literature suggests the opposite. In general, there is more empirical support for the theories of trade credit. The empirical results show a high participation of agro-food firms in trade credit activity in African countries and the United States. While within-industry variability in trade credit activity is not statistically significant in the African agro-food industry, there is significant within-industry variability in the United States. However, there is statistically significant variability in trade credit activity across agro-food firms in the African countries studied. The empirical results from essay two show that the level of trade credit supply increases with manager experience, degree of product diversification, overdraft availability from banks, trade credit from input suppliers and location in capital city. The results provide evidence in support of financing (particularly liquidity and redistribution) and commercial (particularly marketing and quality guarantee) theories of trade credit. Essay three found evidence of a non-linear (inverted U) relationship between trade credit investment and firm profitability, reflecting benefits and costs of trade credit investment. This finding suggest that agro-food firms should be guided by benefit-costs off in their trade credit investment decisions. The study found the threshold of trade credit investment beyond which the relationship between trade credit investment and firm profitability transition from positive to negative. In general, the empirical results show that trade credit is an important source of short-term financing for agro-food firms in African countries and the United States, and should be facilitated through policy.
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