Determinants of Supplier Financing. We begin our empirical enquiry by validating our identification through the determinants model developed by Xxxx et al. (2023), who examine supplier financing firms in the U.K. They develop an empirical profile of supplier financing firms as below: 3 Our inferences do not change when we extend our sample period until the end of calendar year of 2023. Supplier Financingi = α1+ α2 Trade Crediti,t-1 + α3 Cost of Debti,t-1 + α4 Salesi,t-1 + α5 Operating Cyclei,t-1 + α6 Profit Xxxxxxx,t-1 + α7 Xxxxxx’x Xx,t-1 + α8 External Dependencei,t-1 + α9 Debt to ATi,t-1 + Year Fixed Effects + Industry Fixed Effects + εi,t (3) Using this model, Xxxx et al. (2023) establish that supplier financing firms in their sample are financially stable and better performing, as compared to other firms. They also experiment with several other debt ratios other than Debt to AT in their model, to see the effect of different scalars as well as short term versus long term debt. Table 2, Panel A presents the estimation results of the determinants model (3). Our results are generally consistent with their sample of British firms.4 Supplier financing firms are more likely to have higher trade credit and sales. Xxxx et al. (2023) report higher profit margins and external dependence for these firms, while our results with these variables are inconclusive for U.S. firms. Consistent with Xxxx et al. (2023) we report a negative association between supplier financing and default risk5 as well as short term debt (column 3). Moreover, we also find long- term debt is positively associated with supplier financing, which is a predicted but inconclusive result in Chuk et al. (2023). These results are consistent with the notion that firms using supplier financing are more reliant on debt financing and that supplier financing is a substitute for other forms of short-term debt financing. The most notable deviation between our results and Xxxx et al.’s (2023) is in cost of debt. Xxxx et al. (2023) expect and find a negative relationship between supplier financing and cost of debt, while our statistically significant coefficients on cost of debt are positive. We believe an adverse selection effect from cost of debt might be a dominant factor in the U.S. While firms with 4 Untabulated results with a quarterly sample also yield similar inferences. 5 Due to data availability, we proxy default risk with the Xxxxxx Z instead of credit ratings. higher cost of debt and credit risk will face higher costs in the suppl...
