Trade Credit Policy and Agency Theory

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Meryem Bellouma
Meryem Bellouma
1 University Lecturer

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The study here provides an agency model to explain the offer of trade credit in an asymmetric environment between the suppliers and the customers. Many theories inform traditional arguments focusing on the existence of the trade credit (e.g. tax theory, transaction cost theory, liquidity theory and product quality theory). One theory studies the adverse selection phenomenon but the moral hazard problem needs exploration. The findings indicate that day of sales outstanding of Tunisian export SMEs relates directly to adverse selection and inversely link to moral hazard measured by provision on bad debts and cost ratio. By testing the traditional models, the study does not confirm tax theory, liquidity theory or transaction cost theory. However, the findings support the product quality theory which is based on ex-ante asymmetric information.

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No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

Ethical Approval

No ethics committee approval was required for this article type.

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Not applicable for this article.

Meryem Bellouma. 2014. \u201cTrade Credit Policy and Agency Theory\u201d. Global Journal of Management and Business Research - B: Economic & Commerce GJMBR-B Volume 14 (GJMBR Volume 14 Issue B1): .

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GJMBR Volume 14 Issue B1
Pg. 14- 22
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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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v1.2

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March 25, 2014

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English

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The study here provides an agency model to explain the offer of trade credit in an asymmetric environment between the suppliers and the customers. Many theories inform traditional arguments focusing on the existence of the trade credit (e.g. tax theory, transaction cost theory, liquidity theory and product quality theory). One theory studies the adverse selection phenomenon but the moral hazard problem needs exploration. The findings indicate that day of sales outstanding of Tunisian export SMEs relates directly to adverse selection and inversely link to moral hazard measured by provision on bad debts and cost ratio. By testing the traditional models, the study does not confirm tax theory, liquidity theory or transaction cost theory. However, the findings support the product quality theory which is based on ex-ante asymmetric information.

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Trade Credit Policy and Agency Theory

Meryem Bellouma
Meryem Bellouma University Lecturer

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