Customer’s operational efficiency and trade credit provision

  • Wai Ho CHAN

Student thesis: MPhil Thesis (Lingnan)


This study examines whether the trade credit provision is affected by customers’ operational efficiency. We link the supplier firms with their major customers using the Customer Segment database in order to identify the trade credit provision for each pair of supplier-customer relationships. While suppliers have the incentive to provide trade credit to high-quality customers in order to increase market share, excess trade credit would also harm the suppliers once the customers default. Our empirical results indicate that operational efficiency and trade credit are positively associated. This finding supports the view that suppliers tend to select and provide trade credit to high productive customers. Moreover, we find that both suppliers and customers can benefit from more trade credit provision when the customer is more productive. The result is consistent with the supply chain cooperation view. Furthermore, we document the effect of customer’s operational efficiency and trade credit provision on the share of profit between supplier and customer under different situations such as when the supplier has higher bargaining power, lower cost of borrowing as well as lower customer concentration. The study contributes to the literature of trade credit by introducing an additional determinant. Moreover, it provides implication to the trade contract for non-financial firms.
Date of Award31 Aug 2020
Original languageEnglish
Awarding Institution
  • Lingnan University
SupervisorLiming LIU (Supervisor)


  • operational efficiency
  • trade credit
  • supply chain management
  • operations-finance interface

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