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http://dx.doi.org/10.5762/KAIS.2021.22.6.207

The Effect of Trade Credit on Corporate Profitability according to the degree of Corporate Market Share  

Yi, Kayoun (Department of Business Administration, Daegu University)
Publication Information
Journal of the Korea Academia-Industrial cooperation Society / v.22, no.6, 2021 , pp. 207-214 More about this Journal
Abstract
This study aims to analyze the effect of the level of accounts receivable on firm profitability. It is possible to find the optimal level of accounts receivable that maximizes profitability. In this study, 6,632 samples were selected from manufacturing companies listed on the Korean Stock Exchange from 2001 to 2018. We used the fixed effect panel model to analyze the model equation. There is a positive (+) relationship between the profitability of a company, the Return on Assets (ROA), and accounts receivable (AR). Also, this relationship has a nonlinear relationship or a reverse-U shape. There is an optimal level of accounts receivables, which results in profitability increase up to a certain extent, but subsequently, profitability decreases when accounts receivables exceed this level. In the case of monopoly companies with a higher-than-average market share, the coefficient between accounts receivable and firm profitability is greater than that for competitors with a lower market share than average. It supports the hypothesis that Titman (1984) suggested, that trade credit is important for enhancing corporate profitability. It is confirmed that accounts receivables play an important role in enhancing firm profitability and it is necessary to understand this well from the corporate standpoint.
Keywords
Trade Credit; Account Receivable; Profitability; Panel Regression; Market Share;
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