Intangible assets and trade credit policy

Abstract

PurposeThe purpose of this paper is to identify whether the rise in intangible asset investment is related to trade credit investment and whether this relationship is driven by financial constraint and other firm factors.Design/methodology/approachThe study conducts fixed effect regressions testing the relationship between trade credit investment and intangible asset levels. The relationship is further examined for all firms based on product type, financial constraint and sales growth.FindingsThere is a negative relationship between investment in trade credit and the level of intangible assets as a proportion of total assets. This negative relationship is largely explained by firms in industries that traditionally utilize more trade credit, firms with financial constraints and firms with low sales growth.Practical implicationsThe level of investment in intangible assets continues to rise, while investment in trade credit is declining. This paper is the first to identify whether these trends could be related and to provide some explanation why.Originality/valueThis study is the first to link investment in trade credit with investment in intangible assets. There is a negative relationship that is most pronounced for firms that typically offer more trade credit, that are experiencing financial constraint and that are experiencing low growth.

The Impact of Intangible Assets on Capital Structure in Asia

“…Recent studies have found that, in the United States, investment in intangible assets also has a positive and significant relation with debt [Lim et al (2020); Horsch et al (2021)]. Additionally, there is an established negative relationship between investment in trade credit and the level of intangible assets a firm holds as a percentage of total assets (Hartsema et al, 2021).…”