Access and impact of trade credit on the profit of rice – growing household in the Mekong Delta
Main Article Content
Abstract
The study aims to estimate the impact of trade credit on rice farming profits in the Mekong Delta. Using primary data collected from 572 rice-farming households in six provinces of the Mekong Delta, this paper employs the Propensity Score Matching (PSM) method for estimation. The initial PSM results indicates seven factors influencing households' access to trade credit, including two negative factors: household income and experience, and five positive factors: land area, familiarity duration, geographic distance, social status, and number of dealers. The second one using four comparison methods: nearest neighbor, radius, stratification, and kernel matching, reveals that households accessing trade credit have higher rice production profits, by VND 0.386 to 0.482 million per 1,000m² compared to those without access.
Keywords
Agricultural supply dealer, farmer, Mekong Delta, trade credit.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
References
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Alesina, A., Giuliano, P., & Nunn, N. (2013). On the origins of gender roles: Women and the plough. The quarterly journal of economics, 128(2), 469-530. https://doi.org/10.1093/qje/qjt005.
Amrago, E. C., & Mensah, N. O. (2023). Trade credit from agrochemical vendors as an alternative source of finance for cabbage producers in the Bono East Region of Ghana. Agricultural Finance Review, 83(1), 43-82. https://doi.org/10.1108/AFR-11-2021-0155.
Baird, T. D., & Gray, C. L. (2014). Livelihood diversification and shifting social networks of exchange: a social network transition?. World development, 60, 14-30. https://doi.org/10.1016/j.worlddev.2014.02.002.
Becker, S. O., & Ichino, A. (2002). Estimation of average treatment effects based on propensity scores. The Stata Journal, 2(4), 358-377. https://doi.org/10.1177/1536867X0200200403.
Bhattacharya, H. (2008). Theories of trade credit: limitations and applications. Available at SSRN 1286443.
Briggeman, B. C., Towe, C. A., & Morehart, M. J. (2009). Credit constraints: their existence, determinants, and implications for US farm and nonfarm sole proprietorships. american Journal of agricultural economics, 91(1), 275-289. https://doi.org/10.1111/j.1467-8276.2008.01173.x.
Chalil, M., & Siregar, S. V. (2021). The effect of trade credit on company profitability. International Journal of Islamic and Social Sciences (ISOS), 1(3), 72-82.
Ciaian, P., Fałkowski, J., & Kancs, D. A. (2012). Access to credit, factor allocation and farm productivity: Evidence from the CEE transition economies. Agricultural Finance Review, 72(1), 22-47. https://doi.org/10.1108/00021461211222114.
Dary, S. K., & James Jr, H. S. (2019). Does investment in trade credit matter for profitability? Evidence from publicly listed agro-food firms. Research in International Business and Finance, 47, 237-250. https://doi.org/10.1016/j.ribaf.2018.07.012.
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms?. Journal of Business Finance & Accounting, 30(3‐4), 573-588. https://doi.org/10.1111/1468-5957.00008.
Fabbri, D., & Klapper, L. F. (2016). Bargaining power and trade credit. Journal of Corporate Finance, 41, 66-80. https://doi.org/10.1016/j.jcorpfin.2016.07.001.
Fabbri, D., & Menichini, A. M. C. (2010). Trade credit, collateral liquidation, and borrowing constraints. Journal of Financial Economics, 96(3), 413-432. https://doi.org/10.1016/j.jfineco.2010.02.010.
Fatoki, O., & Odeyemi, A. (2010). The determinants of access to trade credit by new SMEs in South Africa. African Journal of Business Management, 4(13), 2763.
Ferris, J. S. (1981). A transactions theory of trade credit use. The Quarterly Journal of Economics, 96(2), 243-270. https://doi.org/10.2307/1882390.
Fischer, R., Huerta, D., & Valenzuela, P. (2019). The inequality-credit nexus. Journal of International Money and Finance, 91, 105-125. https://doi.org/10.1016/j.jimonfin.2018.11.004.
Gujarati, D. N. (2021). Essentials of econometrics. Sage Publications.
Hermes, N., Kihanga, E., Lensink, R., & Lutz, C. (2012). The impact of trade credit on customer switching behaviour: evidence from the Tanzanian rice market. Journal of Development Studies, 48(3), 363-376. https://doi.org/10.1080/00220388.2011.615921.
Katchova, A. L. (2010). Agricultural contracts and alternative marketing options: A matching analysis. Journal of Agricultural and Applied Economics, 42(2), 261-276. https://doi.org/10.1017/S1074070800003448.
Kislat, C., Menkhoff, L., & Neuberger, D. (2017). Credit market structure and collateral in rural Thailand. Economic Notes: Review of Banking, Finance and Monetary Economics, 46(3), 587-632. https://doi.org/10.1111/ecno.12089.
Kehinde, A. D. (2022). Access to trade credit and its impact on the use of European Union (EU) approved pesticides among smallholder cocoa farmers in Ondo State, Nigeria. Heliyon, 8(12).
Kihanga, E., Lensink, R., Lutz, C., & Hermes, N. (2010). Determinants of trade credit demand and supply in the Tanzanian rice market: a structural modelling approach. Available at SSRN 1674842.
Long, M. S., Malitz, I. B., & Ravid, S. A. (1993). Trade credit, quality guarantees, and product marketability. Financial Management, 117-127. https://doi.org/10.2307/3665582.
McGuinness, G., & Hogan, T. (2016). Bank credit and trade credit: Evidence from SMEs over the financial crisis. International Small Business Journal, 34(4), 412-445. https://doi.org/10.1177/0266242614558314.
Petersen, M. A., & Rajan, R. G. (1997). Trade credit: theories and evidence. The Review of Financial Studies, 10(3), 661-691. https://doi.org/10.1093/rfs/10.3.661.
Preve, L. & Sarria-Allende, V. (2010). Working capital management. Oxford University Press
Presbitero, A. F., & Rabellotti, R. (2014). Geographical distance and moral hazard in microcredit: evidence from Colombia. Journal of International Development, 26(1), 91-108. https://doi.org/10.1002/jid.2901.
Qin, M., Wachenheim, C. J., Wang, Z., & Zheng, S. (2019). Factors affecting Chinese farmers’ microcredit participation. Agricultural Finance Review, 79(1), 48-59. https://doi.org/10.1108/AFR-12-2017-0111.
Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41-55. https://doi.org/10.1093/biomet/70.1.41.
Schwartz, R. A. (1974). An economic model of trade credit. Journal of Financial and Quantitative Analysis, 9(4), 643-657. https://doi.org/10.2307/2329765.
Summers, B., & Wilson, N. (2000). Trade credit management and the decision to use factoring: an empirical study. Journal of Business Finance & Accounting, 27(1‐2), 37-68. https://doi.org/10.1111/1468-5957.00305.
Smith, J. K. (1987). Trade credit and informational asymmetry. The Journal of Finance, 42(4), 863-872. https://doi.org/10.1111/j.1540-6261.1987.tb03916.x.
Van Hon, C., & Khuong Ninh, L. (2020). Impact of credit rationing on capital allocated to inputs used by rice farmers in the Mekong River Delta, Vietnam. Journal of Economics and Development, 22(1), 47-60. https://doi.org/10.1108/JED-11-2019-0067.
Yazdanfar, D., & Öhman, P. (2016). The impact of trade credit use on firm profitability: empirical evidence from Sweden. Journal of Advances in Management Research, 13(2), 116-129. https://doi.org/10.1108/JAMR-09-2015-0067.
Alesina, A., Giuliano, P., & Nunn, N. (2013). On the origins of gender roles: Women and the plough. The quarterly journal of economics, 128(2), 469-530. https://doi.org/10.1093/qje/qjt005.
Amrago, E. C., & Mensah, N. O. (2023). Trade credit from agrochemical vendors as an alternative source of finance for cabbage producers in the Bono East Region of Ghana. Agricultural Finance Review, 83(1), 43-82. https://doi.org/10.1108/AFR-11-2021-0155.
Baird, T. D., & Gray, C. L. (2014). Livelihood diversification and shifting social networks of exchange: a social network transition?. World development, 60, 14-30. https://doi.org/10.1016/j.worlddev.2014.02.002.
Becker, S. O., & Ichino, A. (2002). Estimation of average treatment effects based on propensity scores. The Stata Journal, 2(4), 358-377. https://doi.org/10.1177/1536867X0200200403.
Bhattacharya, H. (2008). Theories of trade credit: limitations and applications. Available at SSRN 1286443.
Briggeman, B. C., Towe, C. A., & Morehart, M. J. (2009). Credit constraints: their existence, determinants, and implications for US farm and nonfarm sole proprietorships. american Journal of agricultural economics, 91(1), 275-289. https://doi.org/10.1111/j.1467-8276.2008.01173.x.
Chalil, M., & Siregar, S. V. (2021). The effect of trade credit on company profitability. International Journal of Islamic and Social Sciences (ISOS), 1(3), 72-82.
Ciaian, P., Fałkowski, J., & Kancs, D. A. (2012). Access to credit, factor allocation and farm productivity: Evidence from the CEE transition economies. Agricultural Finance Review, 72(1), 22-47. https://doi.org/10.1108/00021461211222114.
Dary, S. K., & James Jr, H. S. (2019). Does investment in trade credit matter for profitability? Evidence from publicly listed agro-food firms. Research in International Business and Finance, 47, 237-250. https://doi.org/10.1016/j.ribaf.2018.07.012.
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms?. Journal of Business Finance & Accounting, 30(3‐4), 573-588. https://doi.org/10.1111/1468-5957.00008.
Fabbri, D., & Klapper, L. F. (2016). Bargaining power and trade credit. Journal of Corporate Finance, 41, 66-80. https://doi.org/10.1016/j.jcorpfin.2016.07.001.
Fabbri, D., & Menichini, A. M. C. (2010). Trade credit, collateral liquidation, and borrowing constraints. Journal of Financial Economics, 96(3), 413-432. https://doi.org/10.1016/j.jfineco.2010.02.010.
Fatoki, O., & Odeyemi, A. (2010). The determinants of access to trade credit by new SMEs in South Africa. African Journal of Business Management, 4(13), 2763.
Ferris, J. S. (1981). A transactions theory of trade credit use. The Quarterly Journal of Economics, 96(2), 243-270. https://doi.org/10.2307/1882390.
Fischer, R., Huerta, D., & Valenzuela, P. (2019). The inequality-credit nexus. Journal of International Money and Finance, 91, 105-125. https://doi.org/10.1016/j.jimonfin.2018.11.004.
Gujarati, D. N. (2021). Essentials of econometrics. Sage Publications.
Hermes, N., Kihanga, E., Lensink, R., & Lutz, C. (2012). The impact of trade credit on customer switching behaviour: evidence from the Tanzanian rice market. Journal of Development Studies, 48(3), 363-376. https://doi.org/10.1080/00220388.2011.615921.
Katchova, A. L. (2010). Agricultural contracts and alternative marketing options: A matching analysis. Journal of Agricultural and Applied Economics, 42(2), 261-276. https://doi.org/10.1017/S1074070800003448.
Kislat, C., Menkhoff, L., & Neuberger, D. (2017). Credit market structure and collateral in rural Thailand. Economic Notes: Review of Banking, Finance and Monetary Economics, 46(3), 587-632. https://doi.org/10.1111/ecno.12089.
Kehinde, A. D. (2022). Access to trade credit and its impact on the use of European Union (EU) approved pesticides among smallholder cocoa farmers in Ondo State, Nigeria. Heliyon, 8(12).
Kihanga, E., Lensink, R., Lutz, C., & Hermes, N. (2010). Determinants of trade credit demand and supply in the Tanzanian rice market: a structural modelling approach. Available at SSRN 1674842.
Long, M. S., Malitz, I. B., & Ravid, S. A. (1993). Trade credit, quality guarantees, and product marketability. Financial Management, 117-127. https://doi.org/10.2307/3665582.
McGuinness, G., & Hogan, T. (2016). Bank credit and trade credit: Evidence from SMEs over the financial crisis. International Small Business Journal, 34(4), 412-445. https://doi.org/10.1177/0266242614558314.
Petersen, M. A., & Rajan, R. G. (1997). Trade credit: theories and evidence. The Review of Financial Studies, 10(3), 661-691. https://doi.org/10.1093/rfs/10.3.661.
Preve, L. & Sarria-Allende, V. (2010). Working capital management. Oxford University Press
Presbitero, A. F., & Rabellotti, R. (2014). Geographical distance and moral hazard in microcredit: evidence from Colombia. Journal of International Development, 26(1), 91-108. https://doi.org/10.1002/jid.2901.
Qin, M., Wachenheim, C. J., Wang, Z., & Zheng, S. (2019). Factors affecting Chinese farmers’ microcredit participation. Agricultural Finance Review, 79(1), 48-59. https://doi.org/10.1108/AFR-12-2017-0111.
Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41-55. https://doi.org/10.1093/biomet/70.1.41.
Schwartz, R. A. (1974). An economic model of trade credit. Journal of Financial and Quantitative Analysis, 9(4), 643-657. https://doi.org/10.2307/2329765.
Summers, B., & Wilson, N. (2000). Trade credit management and the decision to use factoring: an empirical study. Journal of Business Finance & Accounting, 27(1‐2), 37-68. https://doi.org/10.1111/1468-5957.00305.
Smith, J. K. (1987). Trade credit and informational asymmetry. The Journal of Finance, 42(4), 863-872. https://doi.org/10.1111/j.1540-6261.1987.tb03916.x.
Van Hon, C., & Khuong Ninh, L. (2020). Impact of credit rationing on capital allocated to inputs used by rice farmers in the Mekong River Delta, Vietnam. Journal of Economics and Development, 22(1), 47-60. https://doi.org/10.1108/JED-11-2019-0067.
Yazdanfar, D., & Öhman, P. (2016). The impact of trade credit use on firm profitability: empirical evidence from Sweden. Journal of Advances in Management Research, 13(2), 116-129. https://doi.org/10.1108/JAMR-09-2015-0067.
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