Managerial Ability, Market Competition and Trade Credit

University essay from Handelshögskolan i Stockholm/Institutionen för redovisning och finansiering

Abstract: This thesis aims to first estimate the relationship between managerial ability and trade credit and then examine the moderating effect of market competition on this relationship. We construct a sample consisting of 24,081 firm-year observations within 4,259 US firms and employ two-dimensional fixed effects regression models to test them. We find out there is a significant positive relationship between managerial ability and getting trade credit measured by accounts payable and there is a significant negative relationship between managerial ability and granting trade credit. However, our result does not show a statistically significant support to the moderating effect of market competition on the relationship between managerial ability and trade credit. And we also conduct several robustness tests to support our regression results. Our thesis contributes to fill the gap in the study of trade credit from the perspective of management heterogeneity.

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