Factors Affecting on Trade Credit Period : Evidence from China and Taiwan

• Main Authors: Chi-Ting Wang, 王騏婷
• Other Authors: Min-Sun Horng
• Format: Others
• Language: zh-TW
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/08986413633960201189

碩士 === 國立高雄第一科技大學 === 風險管理與保險研究所 === 102 === Generally, finances of a corporate may be sourced from own funds, loans, and public offering. Global financial crisis is mainly caused by monetary issue, where there is insufficient market liquidity and presence of credit crunch. Therefore, most companies choose to use trade credit as a mean to source finances. To investigate factors affecting trade credit, this study sets the accounts payable/receivable turnover period as the evaluation factors for trade credit, deduces 4 study themes, namely, financial crisis, cash flow, corporate governance, and related party transaction, and examines their effects on trade credit in Taiwan and China companies. Effects of the above themes on corporate before and after the financial crisis are studied. Financial crisis period between 2007 and 2008 is set as the control. Empirical studies find that companies in Taiwan and China start credit crunch after the financial crisis to minimize bad debts ratio. Therefore, post financial crisis is one of the factors affecting trade credit. The effects of company governance on credit turnover are studied. It is found that when the shareholding ratio of directors and supervisors and value of pledged shares hold by directors and supervisors in Taiwan are high, the credit providers become insolvent, credit terms are prolonged, and if the party demanding credit has high bargaining powder, the payment terms will be prolonged. When the board seat control and shareholding dispersion control is tight, credit crunch occurs. China companies with high shareholding ratios of the top 10 trading shares reduce credit terms to minimize bad debts risks. Companies with high total shareholding ratio of the top 10 trading shares, however, give longer credit terms. The study shows that Taiwan companies with good cash flow are given short payment term and suffer from high repayment pressure. On the other hand, China companies with good cash flow are given favorable credit terms and enjoy better business opportunities, meaning that the debtor has high bargaining power. This shows that China companies have better bargaining power as compared with Taiwan companies. Lastly, it is found that Taiwan companies reduce credit terms on accounts payable of the related party and when the party increases purchases. This shows that there may be inventory obsolescence and low product turnover after the bulk purchase and the credit term is therefore shortened. When the related party intends to increase the account payable and account receivable, China companies will shorten the credit term to reduce bad debts risk. And this will cause an increase in the repayment pressure of the debtor.