The Effect of Risk Management on the Speed of Adjustment of Commercial Credit by Considering the Role of Structural Characteristics of Companies' Management
محورهای موضوعی : Financial Mathematics
Ali Akbar Alahyari
1
,
Ali Mohammadi
2
,
Vahab Rostami
3
,
Ali Bayat
4
1 - Department of Accounting, Za.C., Islamic Azad University, Zanjan, Iran.
2 - Department of Accounting, Za.C., Islamic Azad University, Zanjan, Iran
3 - Department of Accounting, Payame Noor University, Tehran, Iran
4 - Department of Accounting, Za.C., Islamic Azad University, Zanjan, Iran
کلید واژه: Commercial Credit Adjustment, Enterprise Risk Management, Structural Characteristics of Management,
چکیده مقاله :
This research aims to investigate the effect of risk management on the speed of adjustment of commercial credit by considering the role of structural characteristics of companies' management. The statistical population is all the companies listed on the Tehran Stock Exchange, and using the systematic elimination sampling method, 124 companies were selected as the research sample. They were examined in the ten years between 2014 and 2023. The results of the research hypotheses test showed that risk management has a direct and significant effect on the adjustment speed of trade receivables and payables. Also, the interaction of management history with risk management directly affects the speed of commercial credit payable and receivable adjustment. The interaction of management independence and risk management has a direct and significant effect on the speed of adjustment of trade credit payable, the interaction of these two variables has an inverse impact on the speed of adjustment of trade credit receivable, and finally, the interaction of the position of management and risk management influences the speed of adjustment of trade credit payable and is not receivable. In summary, this research indicates that risk management plays a significant role in the speed of trade credit adjustment, and this relationship is influenced by the company’s managerial structural characteristics. The findings emphasize the importance of risk management strategies and managerial structure in enhancing financial transparency and efficiency.
This research aims to investigate the effect of risk management on the speed of adjustment of commercial credit by considering the role of structural characteristics of companies' management. The statistical population is all the companies listed on the Tehran Stock Exchange, and using the systematic elimination sampling method, 124 companies were selected as the research sample. They were examined in the ten years between 2014 and 2023. The results of the research hypotheses test showed that risk management has a direct and significant effect on the adjustment speed of trade receivables and payables. Also, the interaction of management history with risk management directly affects the speed of commercial credit payable and receivable adjustment. The interaction of management independence and risk management has a direct and significant effect on the speed of adjustment of trade credit payable, the interaction of these two variables has an inverse impact on the speed of adjustment of trade credit receivable, and finally, the interaction of the position of management and risk management influences the speed of adjustment of trade credit payable and is not receivable. In summary, this research indicates that risk management plays a significant role in the speed of trade credit adjustment, and this relationship is influenced by the company’s managerial structural characteristics. The findings emphasize the importance of risk management strategies and managerial structure in enhancing financial transparency and efficiency.
[1] Asgari Rashtiani H, Mohammadi Nodeh F, Kheradyar S, Rezaei F., The Role of Social Interest Rate Risk Management in the Relationship between Sustainability Performance and Investment Efficiency, Math Finance Appl. ,2020;5(4):549-568. doi:10.22034/amfa.2020.674951
[2] Asif R, Nisar S. ,Does trade credit spur performance of the firm: a case study of non-financial firms in Pakistan, J Islam Account Bus Res., 2022. doi:10.1108/JIABR-10-2021-0289
[3] Barrot JN. ,Trade credit and industry dynamics: Evidence from trucking firms, J. Finance, 2016;71(5):1975-2016. doi:10.1111/jofi.12371
[4] Cao F, Ye K, Zhang N, Li S. ,Trade credit financing and stock price crash risk, J. Int. Financ Manag Account, 2018;29(1):30-56. doi:10.1111/jifm.12067
[5] Demerjian PR, Lev B, Lewis MF, McVay SE., Managerial ability and earnings quality, Account Rev., 2013;88(2):463-498. doi:10.2308/accr-50318
[6] Dak-Adzaklo A., International competition laws and trade credit financing, Econ. Lett., 2025;247:112097. doi: 10.1016/j.econlet.2024.112097
[7] Dao M, Pham T, Xu H., Internal control effectiveness and trade credit, Rev Quant Finance Account, 2022;59(4):1423-1452. doi:10.1007/s11156-022-01079-3
[8] Esmaili H, Afshar Kazemi MA, Radfar R, Pilevari N., Uncertainty Quantification and Human-Centric Risk Control via Neural–PDE Integration in Complex Volatile Systems, Adv Math Finance Appl.,2025;4(10):471-484. doi:10.71716/amfa.2025.21202563
[9] Fama EF, French KR., Testing Trade-Off and Pecking Order Predictions About Dividends and Debt, Rev Financ Stud. ,2002; 15:1-33.
[10] Flannery MJ, Rangan KP. ,Partial adjustment toward target capital structures, J Financ Econ. ,2006;79(3):469-506. doi: 10.1016/j.jfineco.2005.03.004
[11] Goncalves A, Schiozer RF, Sheng HH. ,Trade Credit during Financial Crisis: Do Market Power and Financial Constraints Matter? [Working Paper]. Universite Libre de Bruxelles; 2016. Available from: SSRN 2723504.
[12] Gordon LA, Loeb MP, Tseng CY. ,Enterprise risk management and firm performance: A contingency perspective, J Account Public Policy, 2009;28(4):301-327. doi: 10.1016/j.jaccpubpol.2009.06.006
[13] Hasan MM, Cheung A, Tunas L, Kot HW. ,Firm life cycle and trade credit, Finance Rev., 2021;56(4):743-771. doi:10.1111/fire.12264
[14] Khoo J, Cheung A., Managerial ability and trade credit, Finance Rev., 2022;57(2):429-451. doi:10.1111/fire.12289
[15] Liu Z, Zeng S, Xu X, Lin H, Ma H., Corporate misconduct, trade credit and charitable donations: evidence from Chinese listed companies, Chin Manag Stud. ,2019;13(3):664-686. doi:10.1108/CMS-07-2017-0209
[16] Li HQ, Yang Y, Xue FW, Liu ZY. ,Annual report readability and trade credit financing: Evidence from China, Res Int Bus Financ. ,2024;69. doi: 10.1016/j.ribaf.2024.102220
[17] Luo H., Do firms chase trade credit target? Finance Res Lett. ,2021;43(1). doi: 10.1016/j.frl.2021.102026
[18] Luo H. COVID-19 and trade credit speed of adjustment, Finance Res Lett. ,2022;47(1):102541. doi: 10.1016/j.frl.2021.102541
[19] Martínez-Sola C, García-Teruel PJ, Martínez-Solano P., Corporate cash holding and firm value, Appl Econ. ,2013;45(2):161-170. doi:10.1080/00036846.2011.595696
[20] Molina CA, Preve LA. ,An empirical analysis of the effect of financial distress on trade credit, Finance Manag., 2012;41(1):187-205. doi:10.1111/j.1755-053X.2012.01182.x
[21] Nguyen L., Speed of Adjustment of Trade Receivables: The Case of a Developing Country, J Int Commer Econ Policy, 2025;12(1):1-14. doi:10.1080/23311975.2025.2483376
[22] Nasrollahi M, Zanjirdar M., Davoudi Nasr M., Presenting an Entropy-Based Systemic Risk Warning Model,Adv Math Finance Appl., 2025;2(10):218-234. doi:10.71716/amfa.2025.23081909
[23] Öztekin Ö. ,Capital structure decisions around the world: which factors are reliably important? ,J Financ Quant Anal. ,2015;50(3):301-323. doi:10.1017/S0022109014000660
[24] Park YH. ,A study of risk management and performance measures on new product development, Asian J Qual., 2010;11(1):39-48. doi:10.1108/15982681011051813
[25] Peng P, Xu Z., Subjective preferences, liquidity constraints and price risk management under large-scale farm management, China Agric Econ Rev. ,2023. doi:10.1108/CAER-12-2022-0287
[26] Demerjian PR, Lev B, Lewis MF, McVay SE., Managerial Ability and Earnings Quality, Account Rev. ,2013;88(2):463-498. doi:10.2308/accr-50318
[27] Routledge J. ,Trade credit supply and financial distress outcomes: evidence from Australian voluntary administrations, J Account Lit. ,2023. doi:10.1108/JAL-01-2023-0007
[28] Salehi M, Mousavi Shiri M, Hossini SZ., The relationship between managerial ability, earnings management and internal control quality on audit fees in Iran, Int J Prod Perform Manag., 2020;69(4):685-703. doi:10.1108/IJPPM-07-2018-0261
[29] Seifert D, Seifert RW, Protopappa-Sieke M., Trade credit: literature review and research directions, Eur J Oper Res. ,2013;231(2):245-256. doi: 10.1016/j.ejor.2013.03.016
[30] Song WL, Wan KM. ,Does CEO compensation reflect managerial ability or managerial power? Evi-dence from the compensation of powerful CEOs, J Corp Finance, 2019;56(1):1-14. doi: 10.1016/j.jcorpfin.2018.11.009
[31] Stan-Maduka E. ,The impact of risk management practice on the development of African businesses, World J Entrepreneurship Manag Sustain Dev., 2010;6(3):213-219. doi:10.1108/20425961201000016
[32] Tsuruta D., Does SME policy enhance the adjustment of trade credit? Evidence from a revision of the Sub-contract Act in Japan, Jpn World Econ., 2025; 74:101310. doi: 10.1016/j.japwor.2025.101310
[33] Wang Y, Liu B, Chan HK, Zhang T. Who pays buyers for not disclosing supplier lists? Unlocking the relationship between supply chain transparency and trade credit, J Bus Res. ,2023;155(1):113404. doi: 10.1016/j.jbusres.2022.113404
[34] Xu H, Pham TH, Dao M., Annual report readability and trade credit, Rev Account Financ, 2020;9(3):363-385. doi:10.1108/RAF-10-2019-0221
[35] Zou H, Xie E, Mei N., Political connections and firms’ trade credit in emerging economies, J Bus Ind Mark., 2023. doi:10.1108/JBIM-11-2022-0513
[26] Nikumaram, H., Rahnamay Roodposhti, F., Zanjirdar, M., The Explanation of Risk and Expected Rate of Return by Using of Conditional Downside Capital Assets Pricing Model, Financial knowledge of secu-rities analysis,2008;3(1):55-77
[27] Zanjirdar, M., Khojasteh,S. , The Impact of Investors’ Herding Behavior on the Stock Returns Using Huang and Solomon Model, Quarterly Journal of Fiscal and Economic Policies, 2017;4(15): 115-134
Original Research
The Effect of Risk Management on the Speed of Adjustment of Commercial Credit by Considering the Role of Structural Characteristics of Companies' Management | |||
| |||
Ali Akbar Allahyaria, Ali Mohammadia, Vahab Rostamib,*, Ali Bayata | |||
aDepartment of Accounting, Za.C., Islamic Azad University, Zanjan, Iran bDepartment of Accounting, Payame Noor University, Tehran, Iran | |||
Article Info Article history: Received 2025-06-28 Accepted 2025-09-29
Keywords: Commercial Credit Adjustment Enterprise Risk Management Structural Characteristics of Management |
| Abstract | |
This research aims to investigate the effect of risk management on the speed of adjustment of commercial credit by considering the role of structural characteristics of companies' management. The statistical population is all the companies listed on the Tehran Stock Exchange, and using the systematic elimination sampling method, 124 companies were selected as the research sample. They were examined in the ten years between 2014 and 2023. The results of the research hypotheses test showed that risk management has a direct and significant effect on the adjustment speed of trade receivables and payables. Also, the interaction of management history with risk management directly affects the speed of commercial credit payable and receivable adjustment. The interaction of management independence and risk management has a direct and significant effect on the speed of adjustment of trade credit payable, the interaction of these two variables has an inverse impact on the speed of adjustment of trade credit receivable, and finally, the interaction of the position of management and risk management influences the speed of adjustment of trade credit payable and is not receivable. In summary, this research indicates that risk management plays a significant role in the speed of trade credit adjustment, and this relationship is influenced by the company’s managerial structural characteristics. The findings emphasize the importance of risk management strategies and managerial structure in enhancing financial transparency and efficiency. | |||
1 Introduction
Commercial credit is the most important source of short-term financing for companies and commercial enterprises [15]. Commercial credit is one of the methods by which companies provide funding for short-term periods. Trade credit plays an essential role in the business activities of any company, indicating the level of trust of suppliers and creditors in a company, and is considered a short-term financing tool [35]. Companies with optimal commercial credit receive suppliers' needed goods and services without paying cash. On the other hand, banks and other creditors grant facilities by checking the company's commercial credit [15]. As providers of short-term financing, suppliers consider several vital aspects when they want to extend trade credit to their customers, including the profit margin from additional sales on credit, the ability of the customer company to pay its trade obligations on time, and the long-term financial condition of the customer company [21]. When suppliers sell goods to their customers on credit, the adequate profit margin can be lower than the nominal profit margin Because, in such a case, due to the time value of money, the effective selling price of products decreases [28]. Furthermore, giving credit to customers by suppliers is like providing customers a loan, but without receiving interest (same source). Luo [18] stated that companies have a target trade credit and use a dynamic model to show that companies actively move towards the target trade credit and close the gap between the actual and target trade credit at a specific rate each year cover and adjust [18]. In the way of moving from the commercial credit point to the optimal commercial credit, there will be risks facing the company, and by controlling these risks, the speed of obtaining this funding source will be easier and more accessible, which can be related to the company or outside the company [8]. The company can be discussed through programs to control these risks and form risk committees to manage risk. In general, enterprise risk management is measuring or evaluating risk and then planning strategies for risk management [1]. Risk management is identifying, evaluating, and taking action to control and correct possible risks, which are specific consequences of damage or lack of change in the current situation [24]. Therefore, this question comes to mind whether risk management can improve the speed of trade credit adjustment. So far, this matter has yet to be dealt with in comprehensive research anywhere in the world. Managers always play a vital role in organizations [5]. The effect of outstanding managers in earning income, profit, and organizational success is evident in many successful organizations today. On the other hand, the quick response to the threats and opportunities of today's era has made the manager a vital resource in solving problems in organizations, based on which the need of organizations for competent managers has become more apparent. Managerial competencies consist of knowledge, skills, abilities, and motivations so that the manager can perform the assigned tasks well [31]. Therefore, this question comes to mind: does the interaction of management characteristics with risk management affect the speed of adjustment of the company's commercial credit? It has been stated that the level of trade credit on the balance sheet of the total non-financial business of the United States is almost three times larger than that of bank loans and 15 times larger than that of commercial paper. For example, in South Korea, the supply of commercial credit amounts to 19% of total assets, which is 21% in the United States [18]. One of the main reasons companies are involved in financial crisis and bankruptcy is not paying the company's debt on time. A financial crisis is when the company cannot obtain sufficient financial resources to continue its operations. Therefore, the necessity and importance of using commercial credit in this situation is vital for companies. Thus, commercial credit can solve the problem of financing companies that are impossible through traditional methods. Companies with high commercial credit receive their needed goods and services from suppliers without paying cash, and banks and other lenders also grant them facilities by checking the company's commercial credit. The discussion related to the credit status of companies is essential not only for the companies themselves but also for other company stakeholders, including creditors and current investors. Therefore, it is of great importance to address the discussion of the speed of adjustment of commercial credit concerning the comprehensive discussion of the company's risk management concerning the risks facing them. This research examines the vital role of Trade Credit as a source of short-term financing for companies. Trade credit, which signifies the level of trust between suppliers and customers, enables companies to receive goods and services without the need for immediate cash payment. In this context, the role of managers and risk management strategies in adjusting and optimizing trade credit has been considered. The research indicates that although trade credit is an effective solution for short-term financing and navigating financial crises, risk management and managerial characteristics can influence the speed of achieving optimal trade credit. The main innovation of this research lies in investigating whether risk management can help improve and accelerate the process of adjusting trade credit for companies. This aspect has not been comprehensively studied to date, and a research gap exists in this regard. The research seeks to uncover how individual characteristics and managerial competencies, alongside risk management strategies, influence the speed and efficiency of a company’s trade credit adjustment. The study emphasizes the vital role of trade credit as a solution for companies facing financial crises and those who have been left behind by traditional financing methods. As mentioned in the text, “This issue has not been comprehensively studied anywhere in the world to date.” This statement signifies a clear research gap that the current research aims to fill. While the importance of managers in organizational success is evident, the direct and specific impact of the interaction between managerial characteristics, risk management, and a particular financing tool like trade credit has received less attention. This research aims to clarify this relationship. Given that the failure to pay debts on time is one of the primary reasons for financial crises and bankruptcy, research into the optimization and effective management of short-term financing sources like trade credit is essential for maintaining the financial stability of companies. By clarifying how risk management and managerial competencies can influence the speed of trade credit adjustment, companies can develop better strategies for their financial management. In the continuation of the research structure, the research hypothesis's development has been discussed by presenting theoretical and experimental foundations. In continuation of that, the research methodology and, finally, the findings and results of the research are presented.
2 Research Background
Companies and economic institutions need appropriate and timely financing for investment repayment of debts and increases in working capital. Financial managers always try to increase the company's value by inventing new financing methods [18]. The researchers' findings show that risk premium was a determining factor in explaining changes in investors' expected rate of return, and that there was a conditional relationship between the Downside Beta and expected return. Therefore, to explain the relationship between risk and return, one must pay attention to the market direction [26]. Using the Huang and Salmon model, researchers examined the impact of herding behavior of institutional investors on the stock returns of companies listed on the Tehran Stock Exchange, and their research results showed that there is a relationship between these two variables. Other findings of this study showed that the relationship between herding behavior and stock returns is greater in larger companies than in smaller companies, and also in companies with higher financial leverage; it is greater than in companies with lower financial leverage [27].
Xu et al (2020) in a study entitled Readability of Annual Reports and Business Credit, stated that the level of business credit is higher for companies in business service industries, and this relationship weakens when companies disclose illegible files [34]. Goncalves et al (2016) investigated the effect of product market power on business credit decisions using a sample of 8602 companies in the US stock market. They found that the change in the competitive strength of the company's product market reduces the commercial credit in the financial crisis [11]. Among the types of financing sources, we can mention the commercial credit of companies. Delayed payments to suppliers are considered financing through trade credit. In the world, this method of financing is widely used as a short-term financing tool [4]. Wang et al (2023) in research in the field of supply chain and suppliers and business credit, stated that although previous studies have investigated the financial benefits of improving the transparency of supply chain disclosure, in practice, companies widely hide their information in this regard [33]. The results of his research reveal that companies with lower supply chain transparency receive more commercial credit. Trade credit is a source of short-term financing for small and medium enterprises [30]. Trade credit is a bilateral agreement between a seller (supplier) and a buyer (requester). Nguyen (2025) In a study examining financial constraints and the speed of trade credit adjustment, they stated that We find that Vietnamese firms do adjust toward their target trade receivables, and this process occurs slightly faster during the Covid-19 period. Furthermore, easing internal financial constraints enhances firms’ ability to close the gap to their target levels more effectively. To our knowledge, this is the first study to examine the effect of financial constraints on trade receivables adjustment speed in the context of a developing country. Finally, we show that Covid-19 exerts a mixed effect on the relationship between financial constraints and speed of adjustment of trade receivables, depending on the proxy of constraint. Based on the research findings, we provide relevant implications for the management of trade credit in a developing country [21].
In signaling theory, it is stated that companies send signals to the market and stakeholders through their actions. Strong risk management can be a signal of financial stability, predictability, and a company’s ability to manage fluctuations. A company that has effective risk management (e.g., liquidity risk, customer credit risk, operational risk) signals to its suppliers that the likelihood of default or non-payment of its debts is lower. This positive signal can lead suppliers to behave more flexibly with the company, including offering more trade credit or adjusting credit terms more quickly (e.g., extending repayment periods or reducing implicit interest rates). Contingency theory states that there is no single “best” approach to management. The best approach depends on specific conditions and contingencies (such as the external environment, company size, and industry). Risk management in the context of trade credit should be consistent with the specific circumstances of the company and its operating environment. In general, commercial credit has two dimensions: supply and demand. The demand side of trade credit is reflected in accounts and trade payable documents, and the supply side is reflected in accounts and trade receivables and demand documents [6]. Demand for commercial credit is a method of financing, and the supply of commercial credit to customers is considered one of the ways of investment [32]. Then, the demand for trade credit is reflected in accounts and trade payable documents. Trade credit has become one of the important sources of short-term financing for companies [19]. Barrot (2016) notes that the level of trade credit on the balance sheet of total US non-financial businesses is approximately three times larger than bank loans and 15 times larger than commercial paper [3]. Generally, trade credit constitutes a significant part of companies' assets and liabilities in different countries. Therefore, the correct management of trade credit can have a significant impact on the value of the company and the wealth of its shareholders. Due to the advantages of commercial credit, in the economic system of most countries, the amount of commercial credit used by companies is higher than the amount of short-term bank loans [35]. Dao et al (2022) provided evidence that companies with more effective internal controls than others settle their trade credit contracts faster. In addition, He pointed out that companies have a higher demand for trade credit when companies have ineffective internal controls [7]. Previous studies show significant cross-sectional variation in the use of trade credit and indicate that trade credit acts as a potential substitute for bank credit when firms face difficulties securing capital from external sources [19]. Asif and Nisar (2022) in research entitled "Does trade credit stimulate company performance," stated that profitable companies with high involvement in trade credit can increase their performance by optimally using trade credit resources. However, obtaining bank loans for companies that do not have operational needs can disrupt their financial health and ultimately threaten their performance.
This relationship is more evident for large companies [2]. Existing studies suggest market imperfections or failures, such as asymmetric information between firms, financial institutions, and suppliers, are the main motivations for using trade credit [19]. Hasan (2021) investigated the relationship between company life cycle and trade credit. They stated that companies in the introduction, growth, and decline stages use significantly more trade credit, while companies in the maturity stage use significantly less trade credit. they do. These studies show that companies use more trade credit when they need help securing capital from external sources [13]. Empirical studies support this argument and show that trade credit is important alternative financing for companies that face asymmetric information, financial constraints, liquidity shocks, or the risk of financial helplessness [20]. Luo (2021) investigated the effect of Covid-19 on the speed of trade credit adjustment and showed that Covid-19 significantly increased the speed of convergence of US companies towards the target trade credit and, in addition, companies that were exposed to higher operational risk tended to adjust their business credit toward target more quickly than less risk-averse firms [18]. However, due to various internal (commercial risk) and external risks and macroeconomic shocks (such as political risk, exchange rate risk, economic risk, etc.), the observed commercial credit level of the company often deviates from its target and optimal level. In this condition, the company cannot use all its capabilities in this context, as the managers are trying to achieve the target (optimal) commercial credit at a higher speed [17]. The optimal and effective management of risks facing companies has a very effective role in the efficiency and effectiveness of these institutions. Many foreign institutions consider a predetermined framework to deal with all kinds of risks facing the company, called risk management [31]. Risk management is the process of identifying, analyzing, and responding to risk factors that may occur during the life of a project. If risk management is done correctly, it can prevent possible risks by controlling future events. These risks and crises must be identified and analyzed before they occur. Accordingly, there is a controlled way to overcome the crisis, which will ultimately lead to the least damage or unpleasant consequences, and this can be achieved with risk management [25]. If risk management is implemented well in the business unit, it can create a competitive advantage. By creating a competitive advantage, it can be expected that despite capable management, risk management techniques can play an important role in increasing investment productivity and ultimately improve the company's terms of receiving and paying credit. The company can reach the company's optimal commercial credit more quickly. Therefore, it is expected that by properly managing the risks faced by the companies, the company can more quickly compensate for the gap between real and optimal commercial credit so that it can finally use this source of financing with maximum power. Therefore, the first and second hypotheses of the current research are stated as follows:
H1: The company's risk management affects the speed of adjustment of its payable trade credit.
H2: The company's risk management affects its trade receivables' speed of adjustment.
In today’s knowledge-based and competitive economy, management is recognized as one of the most vital factors of production and organizational success. Moving beyond the traditional view that positioned management merely alongside labor, capital, and raw materials, management today plays a pivotal role in integrating, guiding, and optimizing these resources. This prominent role is particularly emphasized in modern Corporate Governance theories, which highlight the importance of oversight structures and processes to ensure efficient and accountable performance [26]. Stakeholder Theory suggests that companies should consider the interests of all stakeholders, including shareholders, employees, customers, and creditors. Experienced and independent managers play a key role in balancing these interests and ensuring the long-term sustainability of the company. Furthermore, Agency Theory addresses the potential conflict of interests between managers (agents) and shareholders (principals) [28]. In this regard, the board of directors’ structure, particularly the independence and competence of its members, acts as a crucial mechanism for reducing agency costs and aligning managers’ interests with those of shareholders. Independent directors can effectively oversee the decisions of executive managers and prevent decisions that solely benefit managers and not shareholders. Managerial ability refers to the set of skills, knowledge, and experiences managers possess in optimally allocating the company’s resources to achieve higher operational and financial efficiency. Highly capable managers are able to make more efficient decisions and better identify opportunities in complex and uncertain situations. This concept has increasingly gained attention in financial literature [30]. Demerjian et al (2013) showed that managerial ability has a positive association with a company’s earnings quality. Capable managers can improve operational processes through efficient management, thereby providing more reliable and transparent financial information [5]. Managers with high background and ability have more experience in dealing with various challenges and risks. This experience allows them to identify, assess, and manage risks more effectively. In other words, managerial ability can act as an important factor in strengthening internal control mechanisms and enterprise risk management [12]. Khoo and Cheung (2022) specifically examined the impact of managerial ability on trade credit. They concluded that companies with higher managerial ability often have greater trade credit received. This suggests that creditors perceive managerial ability as a positive signal of a company’s financial health and operational stability [14]. Moreover, this effect is more pronounced in companies with greater financial constraints or lower credit quality, as managerial ability can reduce the risk of default. The concept of speed of adjustment refers to the pace at which companies adjust their trade credit balances (both receivables and payables) towards their optimal or target level. Companies tend to adjust their trade credit balances to a desirable level to reduce costs associated with deviations from the target. This speed can be influenced by various factors, including adjustment costs, financial constraints, environmental uncertainty, and managerial characteristics. The structural characteristics of the board of directors, including the independence of directors, their work experience, and their power (strong position), can influence the company’s decision-making processes, particularly risk management and trade credit policies.
Independent directors, due to their lack of affiliation with executive management, can provide more impartial oversight of the company’s performance and protect stakeholders’ interests against risky or non-transparent decisions. In risk situations, they are more inclined to make decisions that ensure the company’s and stakeholders’ long-term interests [28]. This independence can contribute to improving the company’s risk management and consequently optimizing trade credit policies. Managers with longer tenure in the company or in the relevant industry usually possess deeper knowledge and experience. This background enables them to identify risks more accurately and react more effectively to them [6]. Managerial experience is recognized as an important factor in managers’ ability to guide the company through uncertainty and optimize risk management. A strong managerial position can refer to managers’ influence and impact on the company’s major decision-making, which can stem from key positions on the board, share ownership, or professional credibility [30]. Managers with a strong position can implement risk management policies more decisively and ensure that decisions related to trade credit are made in line with the company’s overall objectives and risk optimization. Considering the theoretical foundations discussed, this study examines the moderating role of managerial characteristics (experience, independence, and strong position) on the relationship between optimal corporate risk management and the speed of trade credit adjustment. It is predicted that positive managerial characteristics will strengthen this relationship, enabling companies to adjust their trade credit policies towards optimal levels with greater speed and efficiency, especially in situations requiring optimal risk management. Therefore, according to the stated contents, the third to eighth research hypotheses are stated as follows:
H3: Management history affects the relationship between the company's optimal risk management and the speed of adjustment of payable trade credit.
H4: Management history affects the relationship between the company's optimal risk management and the speed of adjustment of trade receivables.
H5: Management independence affects the relationship between the company's optimal risk management and the speed of adjustment of trade credit payable.
H6: Management independence affects the relationship between the company's optimal risk management and the speed of trade credit adjustment.
H7: The management's strong position affects the relationship between the company's optimal risk management and the speed of adjustment of the trade credit payable.
H8: The strong position of the management affects the relationship between the company's optimal risk management and the speed of adjustment of trade receivables.
3 Methodology
The presented research is of applied type and from the point of view of methodology because it has investigated it after an event; it is of the causal and post-event correlation. The statistical population studied in this research is Tehran Stock Exchange companies, and the studied period is from 2014 to 2023. Companies that meet the following conditions were selected as the final sample in systematic elimination. Regarding comparability, the financial year chosen by the company is at the end of March. They have kept the financial year during the period (10 years) investigated and the information required in the research. Also, the companies should not be part of banks, insurance, and investment companies. By applying the above conditions, 124 companies were included in the final screening from the statistical population as the final sample. The sample companies' information was analyzed using the combined panel data method, EViews 12 software, and the robust standard error for the final test of the hypotheses. Time and place in different periods provide complete and reliable information to the researcher, and regression by applying the powerful standard error tool can be the best option to investigate the relationships in the current study. Regression has been chosen for hypothesis testing because its primary goal is to examine and measure the relationship between one or more independent variables and a dependent variable. Regression not only reveals the relationship but can also be used to predict the values of the dependent variable based on the values of the independent variables. This helps in simulating different scenarios and predicting the potential impact of changes in risk management on the speed of trade credit adjustment. By employing multiple regression, the effects of other variables that may influence the speed of trade credit adjustment can be controlled, leading to a better understanding of the relationship. Regression is a very common and accepted statistical method in scientific research, particularly in the fields of finance and accounting. Many previous studies that have examined similar relationships have utilized this method, demonstrating its validity and efficiency.
Research dependent variable: Trade credit adjustment speed (TCAS): According to Luo [18] in many studies measuring the speed of adjustment, the partial adjustment model is used to measure the speed of adjustment [28]. In the partial adjustment model, in the first stage, both real and optimal commercial credit leverage should be measured. Still, since optimal commercial credit cannot be measured directly, its value must be obtained by replacing other variables. In this research, those apparent characteristics of the company that influence financing decisions are considered, and other characteristics, such as the economic situation and unobservable (uncontrollable) effects that affect financing decisions and are not easily measured, are considered errors. The estimator is considered. The optimal business credit is estimated with the help of the following model [18]. According to Luo's research [18] the partial adjustment model is used in many studies measuring the speed of adjustment [10]. In the partial adjustment model, in the first stage, both real and optimal commercial credit leverage should be measured. Still, since optimal commercial credit cannot be measured directly, its value must be obtained by replacing other variables. In this research, those apparent characteristics of the company that influence financing decisions are considered, and other characteristics, such as the economic situation and unobservable (uncontrollable) effects that affect financing decisions and are not easily measured, are considered errors. The estimator is considered. The optimal business credit is estimated with the help of the following model [18].
| (1)
|
| (2)
|
Variable | symbol | How to Operate |
Buy | Sale | Total sales divided by total assets |
Positive sales changes | Sale + Δ | If the sales change is positive, then one or zero. |
Negative sales changes | Sale – Δ | If the sales change is negative, then one or zero. |
Costs | Cost | The cost of the goods sold is divided by total assets |
Positive cost changes | Δ Cost + | If the cost changes are positive، then one or zero. |
Negative cost changes | Δ Cost - | If the cost is negative، then one or zero. |
Company Size | SIZE | Natural logarithm of total assets |
Inventory | Inventory | The ratio of total inventory to assets (Lou, 2022). |
Accumulated profit | RE | The ratio of cumulative profit divided by total assets. |
Age of company | AGE | Natural logarithm of the date of the establishment of the company from the desired date. |
Short-term debt | Short debt | Short-term debt ratio to total assets (Lou, 2022). |
Business Credit Payable | Ap | Accounts payable by total assets (Lou ، 2022). |
Business Credit Receivable | AR | Accounts receivable divided by total assets. |
Source: Lu (2021), Aflatooni et al (2021)
By replacing the company's characteristics in model 1, the following model will obtain the optimal trade credit received and paid.
How to calculate (AR) (trade credit receivable) (supply)
| (3) |
|
|
| (4)
|
| (5)
|
| (6) |
| (7) |
ERMIi,t = β0 + β1EUit + β2CIit + β3FSit + β4FCit + β5MBDit + Ɛ it | (8)
|
It is ERMI (risk management components according to the Cuzo model), EU (environmental uncertainty factor), CI (degree of competition in industries), FS (firm size), FC (firm complexity), and MBD (regulatory role of the corporate board). In the introduced model, Ɛ is the residual of the model. The lower the residual component of the model, the higher the company's risk management, and the higher the residual component of the model, the lower the risk management in the company. Therefore, the absolute value of the obtained residual multiplied by a negative one indicates risk management in this research, and the introduction of each of the indicators has been discussed in the following.
Risk Management Components (ERMI): The model introduced by Kozo16 in 2004 for measuring risk management is as follows:
| (9)
|
| (10)
|
| (11) |
| (12) |
| (13) |
TAi,t /Ai,t-1 = α1(1/Ai,t-1)+α2(ΔREVi,t - ΔRECi,t) /Ai,t-1 +α3(PPEi,t/Ai,t-1) +εi, t | (14)
|
In the above model, TA (total accruals), ΔREVi,t (changes in income in period t compared to t-1), ΔRECi,t (changes in accounts receivable in period t compared to t-1), PPEi,t (gross fixed assets), Ai,t-1 (the book value of assets in period t-1) and εi,t (the residual of the model). After calculating alpha coefficients in the above model, it has been calculated using the following model of non-discretionary accrual items (NDA):
NDAi,t = α1(1/Ai,t-1)+α2(ΔREVi,t - ΔRECi,t) /Ai,t-1 +α3(PPEi,t/Ai,t-1)+εi,t | (15) |
Discretionary accruals (DA) after determining the NDA have been operationalized with the following model, which is equal to the remainder of the model:
DAi,t = (DAi,t /Ai,t-1) - NDAi,t | (16) |
|
|
Reporting2= (Material Weakness) + (Auditor Opinion) + (Restatement)
In the second model, which shows the health of financial reports from the point of view of a reference called the auditor:
Material Weakness (the number of items in the auditor's report), Auditor Opinion (a two-valued qualitative variable based on the auditors' opinion, which is coded as one if it is declared acceptable and zero otherwise), Restatement (a two-valued qualitative variable that is coded if the updated financial statements are presented one or zero will be considered).
Compliance and alignment with regulations can reduce risk. To operationalize compliance from
The following two patterns can be used (Gordon, Loeb and Tseng, 2009).
Compliance 1= (cost audits)/ (companies total assets)
Compliance2= (net (loss) profit)/ (companies total assets)
Environmental Uncertainty Factor (EU): Environmental uncertainty is defined as an increase in unpredictable future events. Therefore, environmental uncertainty is an influential factor in risk management. This environmental uncertainty can cause many problems for organizations. Financial reporting and performance measurement are more complicated in companies with variable and highly volatile business operations. Risk management, as a subset of the management control system, aims to identify and manage uncertain future events in companies. Therefore, environmental uncertainty can influence risk management [10]. Therefore, to operationalize this factor, the following three factors have been used:
Coefficients of income changes ((Sit)CN), b) Coefficients of capital cost changes, c) Coefficients of changes of net profit before tax ((Iit)CV), and Iit is the net profit before tax of the company in the current period.
| (17) |
| (18) |
| (19) |
|
|
| (20) |
|
|
gt = ROE * [(1-(DPSt / EPSt) ] | (21)
|
Where,
DPST (cash dividend paid per share) and Pt-1 (share price at the beginning of the year), gt (profit growth rate), ROE (return on equity), and EPS (earnings per share).
Industry Competition (CI): Industry competition shows concentration in industries, where low concentration means high competition operationalized by the following model:
| (22) |
FC =-1* CORREL (revenues & earnings) | (23)
|
Monitoring of the board of directors (MBD): Considering the minimum number of board members of the company, which is five people, managers with different experiences, expertise, and thoughts can be beneficial to increase the performance of the company because the number of managers affects the value of the company and its risk-taking is influential. Also, the size of the board of directors influences the decision-making process and the effectiveness of the board of directors. Some studies about group decision-making in economics and social psychology have shown that more effort is needed for a large group to reach a consensus. The ratio of the number of people on the board of directors to the logarithm of the company's sales revenue has been used to measure the supervision of the board of directors.
Research moderator variables
Management position (MP): To measure the management position, we will use a two-dimensional variable so that if the CEO is also the chairman of the board of directors, it will be considered as management with a strong position and the value of one. Otherwise, the number will be zero [30].
Management history (MEX): To measure the work history of managers, the number of consecutive years that the managers have been in the management position of the company is used. In fact, for example, a manager has five years of company management experience, and five years is considered the manager's work experience [30].
Independence of managers (MIND): The ratio of non-executive directors to all board members has been used to measure managers' independence [30].
Research control variables: According to various studies in the field of commercial credit, such as Luo [18] the following variables have been applied to control unwanted factors in the research model.
ROA: Net profit divided by total assets
SATE: If the largest shareholder is a government or government-affiliated company, the number will be one. Otherwise, it will be zero.
SIZE: natural logarithm of total assets
Growth: Sales revenue minus the sales of the previous period divided by the sales of the last period.
CASH: the ratio of operating cash to total assets
LEV: The ratio of the total liabilities of the company to the total assets of the company at the end of each financial period.
Comprehensive regression model of research: According to empirical research such as Luo [18] the following mathematical model has been designed.
سکوی نشر دانش
پیوندهای سایت
مراکز مرتبط
پشتیبانی
صفحات رسمی
حقوق این وبسایت متعلق به سامانه مدیریت نشریات دانشگاه آزاد اسلامی است.
حق نشر © 1404-1400