Strategic deviance and trade credit

Abstract

PurposeLiterature sparsely documents the association between the deviant behavior of a firm and its financial policies. Trade credit is one of the most critical financial policies of a firm. In this study, the authors examine the association between strategic deviance and trade credit.Design/methodology/approachThe authors explore a strategy-based explanation for trade credit by examining whether strategic deviance affects trade credit using a sample of 33 countries from 1996 to 2020. The authors test the hypothesis using static OLS regression models. To address autocorrelation and endogeneity issues, the authors use dynamic OLS models, lag models, and instrumental variable approach.FindingsThe authors find that an increase in strategic deviance reduces both demand and supply of trade credit, and the study’s results indicate that a one standard deviation increase in strategic deviance leads to a 1.34% decrease in the demand for trade credit. Also, a one standard deviation increase in strategic deviance leads to a 2.26% fall in the supply of trade credit.Practical implicationsThis study facilitates managers to formulate trade credit policies when choosing a deviant strategy.Originality/valueTo the best of the authors’ knowledge, this is the first study to explore the association between strategic deviance and trade credit policies.

Business strategy and strategic deviation in accounting, finance, and corporate governance: A review of the empirical literature

“…Damle and Sinha (2022) find that deviant firms neither receive trade credit from suppliers nor provide trade credit to customers. As the authors argue, deviant firms are less likely to receive trade credit because it is difficult for suppliers to forecast deviant firms' extreme performance (Tang et al, 2011), given the absence of private information advantage and lower accounting quality.…”