Trade credit supply in African agro-food manufacturing industry: determinants and motives
ISSN: 0002-1466
Article publication date: 8 January 2018
Issue publication date: 14 May 2018
Abstract
Purpose
The purpose of this paper is to examine the determinants and motives for supply of trade credit among agro-food manufacturing firms in African countries.
Design/methodology/approach
The paper uses a subsample of food manufacturing firms from World Bank Enterprise Survey in eight African countries in 2014. Two-limit Tobit models are specified for the determinants of trade credit supply (TCS) and the motives for TCS are inferred from the determinants. An instrumental variable two-limit Tobit model is estimated to check the endogeneity of trade credit received (TCR) in relation to trade credit supplied.
Findings
The level of TCS is significantly related with degree of product diversification, manager experience, level of TCR and overdraft availability. From the results, financing motives (particularly liquidity and redistribution) and commercial motives (particularly marketing and quality guarantee motives) for TCS are implied.
Research limitations/implications
The parameter estimates may contain both demand and supply effects as the two effects cannot be separated due to absence of information on firms’ customers in the data set. The results should be interpreted in this context.
Originality/value
The motives for TCS by agro-food firms is less understood in the agricultural finance literature and this paper makes an important contribution in this regard. In particular, the paper shows the degree of product diversification is directly associated with TCS, a relationship which has not been explored in the trade credit literature.
Keywords
Acknowledgements
The World Bank is duly acknowledged for granting access to the Enterprise Surveys data used in this paper.
Citation
Dary, S.K. and James Jr, H.S. (2018), "Trade credit supply in African agro-food manufacturing industry: determinants and motives", Agricultural Finance Review, Vol. 78 No. 3, pp. 312-329. https://doi.org/10.1108/AFR-03-2017-0017
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited