Now it is time for me to test how well my knowledge can be applied in practice. They also found that cash reserves are used to finance accounts receivables at the start of a recession. This negative, significant and robust relation is also found during the crisis period. In the discussion of the results of the non-crisis period the sign and the impact of the different parts of WCM will be discussed and compared to other studies which have studied WCM during non-crisis years. Evidence from Japan and Taiwan. These results support the theory that trade credit can be explained by the advantages a supplying firm has over financial institutions. The results of the crisis period correlation analysis show a negative relation between the number of days accounts payables and GOP.

This is stance is taken by companies who operate in a stable and certain environment where working capital is to be kept at a minimum. Afterwards the different WCM policies a firm can choose are summarized, and the advantages and disadvantages they have are discussed. Working capital management during crisis years To understand the expectations of how working capital is managed during crisis years, the main problem firms face in times of a crisis needs to be explained. Further is expected that the different negative instead of positive effect expectation concerning the number accounts payables will not change the expected negative effect of the CCC. Trade Credit and the Money Market.

Trade Credit and the Money Market. First of off all I am very grateful to my supervisors at the University of Twente, Prof.

Boudewijn van den Berg | University of Twente –

What is interesting to note is that the results shows a positive effect of the days of net trade credit on GOP. Comment, American Economic Review 86 1. A comparable utwennte of 44,48 days is found by Deloof He found that when bank scale back lending, firms with relatively high cash balances increase their accounts receivables.

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They argue that a WCM, which resulted in the highest profitability, must be the best way of managing working capital that can be implemented. Mathuva found contradicting evidence with the management of inventories in Kenya.


They reason that more profitable firms delay their payment to suppliers. Receiving such a trade credit from a supplier allows a firm to assess the quality of excelent products bought, and can be an inexpensive and flexible source of financing for the firm Deloof, ; and Raheman and Nasr, This contradicting evidence should not be taken that hard, because it is based on the accounts receivables of 31st of December of and Business and Economics Journal, American Economic Review, 79 4pp.

The VIF scores can be found between the [ ]. For this reason firms should even give more attention to the inventory levels during crisis periods, and make certain the levels of inventories are kept at a reasonable minimum. Journal of Financial and Quantitative Analysis, 9, pp. Somewhat matching results are found by Falope and Mastrewho found respectively 61,21 days and 59,34 days.

The last control variable which indicated a significant positive relation towards the dependent variable is current ratio.

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The findings of this study for the number of days of inventories are on average 36,88 days with a median of 28,46 days. The first reason for this could be that more profitable firms pay earlier than less profitable firms, which in turn would affect the profitability and not the other way round. In non-crisis periods, as is discussed in paragraph B of this chapter, both the number of days of inventory and accounts payables need to be as minimal as possible to gain the most profit.

These factors significantly increase the use of trade credit by these start-up firms. It can also be applied to the ISIC and SIC code, because the first two digits of a code of a company are the same for each of these three classification systems. Current Ratio Current assets divided by current liabilities. They found evidence of a strong negative relation between NTC and firm profitability. The regression analyses are only a snapshot of the short-term benefits and further research should study the long-term benefits of increasing the number of days accounts receivables by larger firms during crisis periods.


Determinants of Trade Credit: Regression analyses In the following part the regression analyses are used to investigate the impact of WCM on corporate profitability for the crisis years and also the non-crisis years period. In the second part of the paragraph an overview of the literature study on the determinants of trade credit is given.

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A reason for this could be that excessive levels of current assets can easily lead to a below average return on investment for a firm Raheman and Nasr, These accounts receivables are granted to financially constraint firms in the form of trade credit, which can be seen as a short-term loan. Afterwards the different WCM policies a firm can choose are summarized, and the advantages and disadvantages they have are discussed.

If this discount is not taken, the buyer has to pay after the tenth day, with a very high effective interest rate till the bill is paid. Since the aid to financially constraint customers is beneficial for the profitability of a firm, the following hypotheses are expected, concerning accounts receivables during a crisis period: This could imply that managers are also creating value if they keep the number of days accounts receivables to a minimum. The profitability measures that will be used in this study is gross operating profit before depreciation and amortization divided by total assets minus financial assets, in this study this measurement is abbreviated to GOP.

To proof this effect, the following hypothesis needs to be tested: