TRADE RECEIVABLES COLLECTION PERIOD AND FIRM VALUE: EVIDENCE FROM LISTED TURKISH INDUSTRIALS

Abstract

This paper shows that average collection period of trade receivables (ACP) and a deterioration in the credit quality of trade receivables both have negative effect on firm value. Evidence is based on Turkish industrial firms listed on Borsa Istanbul over 2005-2017 period. The effect exists only for firms whose average collection period increased by more than thirty days within the last one to three years. Similarly, the value consequence of ACP holds for high-profit firms, but not for low-profit firms. This study utilizes system generalized method of moments in all estimations and treats trade receivable policy variables as endogenous due to omitted variable bias concerns. Overall, findings suggest a destructive effect of lengthened deferred payment terms on firm value specifically for high-profit firms and for firms with a historical upward trend in ACP.