Investigation of the Moderating Role of Agency Problem, Product Market Competition and Customer Concentration in the Effect of Trade Credit on Cost Stickiness

Document Type : Research Paper


1 Assistant Prof., Department of Accounting, Management and Accounting Faculty, Allameh Tabataba'i University, Tehran, Iran.

2 MSc., Department of Accounting, Management and Accounting Faculty, Allameh Tabataba'i University, Tehran, Iran.


Objective: This research seeks to investigate whether credit trade can decrease cost stickness (as a signal of opportunistic behavior of manager) or not? and whether agency problem, product market competition and customer concentration can moderate the effect of trade credit on cost stickness or not?
Methods: Trade credit is measured by two ratios: accounts payable to cost of good sold ratio and accounts payable to sale ratio. Cost stickness is measures by selling, general and administrative expense stickness (SGA) and cost of goods sold stickness(CGS). The statistical population consists of the firms listed in Tehran Stock Exchange between 2014 to 2020.
Results: Credit trade affects negatively on cost stickiness and this effect is prevalent in the firms with more agency problems and active in less competitive market.
Conclusion: According to obtained findings, using credit trade leads to decrease the opportunistic behavior of managers and cost stickiness and so, it is a monitoring tool that can be used in evaluating performance and expense efficiency of firms. Additionally, in the firms suffer from more agency problems or active in less competitive market, trade credit decreases cost stickness more because suppliers monitor these firms more than others in order to maintain their interest.


Afrifa, G.A, Gyapong, E, Monem, R.M. (2018). Product differentiation, market dynamics and the value relevance of trade payable: evidence from UK listed firms, Journal of contemporary accounting and economics, 14(3), 235-253.
Agostino, M, Trivieri, F. (2014). Does credit trade effect technical efficiency? Empirical evidence from Italian manufacturing SMEs, Journal of small business management, 57(2), 576-592.
Aktas, N, E. de Bodt, F. Lobez and J. C. Statnik. (2012). The information content of trade credit, Journal of Banking and Finance, 36(5), 1402-1413.
Anderson, M. C., R. D. Banker, and S. N. Janakiraman, (2003). Are selling, general, and administrative costs ‘sticky’? Journal of Accounting Research, 41(1), 47–63.
Baggs, J, and J-E deBettignies. (2007). Product market competition and agency costs, The Journal of Industrial Economics, 55(2), 289-323.
Campello, M, Gao, J. (2017). Customer concentration and loan contract terms, Journal of financial economics, 123(1), 108-126.
Cao, F., K. Ye, N. Zhang, and S. Li, (2018), Trade credit financing and stock price crash risk, Journal of International Financial Management and Accounting, 29(1), 30–56.
Chen, C. X., H. Lu, and T. Sougiannis, (2012), The agency problem, corporate governance, and the asymmetrical behavior of selling, general, and administrative costs, Contemporary Accounting Research, 29(1), 252–282.
Costa Mabel D., Habib Ahsan (2021). Trade credit and cost stickiness. Accounting & Finance. DOI: 10.1111/acfi.12606Corpus ID: 213256276
Costa, M. D., & Habib, A. (2020). Trade credit and cost stickiness. Accounting & Finance, 34(1), 226-253.
Datta, D. K., J. P. Guthrie, D. Basuil and A. Pandey. (2010). Causes and effects of employee downsizing: a review and synthesis, Journal of Management, 36(1), 281-348.
Ebrahimi Kordlar, A., Taheri, M. (2015). Examining the Relationship between Earnings Quality and Trade Credit. Journal of Iranian Accounting Review, 2(8), 1-14. (in Persian)
Fisman, R., and I. Love, 2003, Trade credit, financial intermediary development, and industry growth, The Journal of Finance, 58(1), 353–374.
Giroud, X. & Mueller, H. M. (2011), Corporate governance, product market competition, and equity prices, The Journal of Finance, 66(2), 563–600.
Gosman, M.L, Kohlbech, M. (2009). Effect of existence and identity of major customers on supplier profitability. Is Wal-Mart different? Journal of management accounting research, 21(1), 179-201.
Guariglia, A. & Matut, S. (2006). Credit channel, trade credit channel and inventory investment: evidence from a panel of UK firms, Journal of banking and finance, 30(10), 2835-2856.
Habib, A. & Costa, M. (2021), Debt maturity structure and cost stickiness, corporate accounting & finance, 32(1), 78-89,
He, W., 2012, Agency problems, product market competition and dividend policies in Japan, Accounting and Finance 52(3), 873–901.
Huang, H.H, Lobo, G.J, Xie, H. (2016).customer concentration and corporate tax evidence, Journal of banking and finance, 72, 814-200.
Izadi Nia, N., Taheri, M. (2016). The Relation between Accounting Quality and Trade Credit. Empirical Research in Accounting, 5(3), 81-102. (in Persian)
Jain, N. (2001). Monitoring costs and trade credit, The Quarterly Review of Economics and Finance, 41(1), 89-110.
Khajavi, Sh., Ghayouri Moghadam, A. & Hejab, H. (2021). Investigating the effect of trade credit on cost stickness, Journal of Financial Accounting Knowledge, 8(3), 125-141.
(in Persian)
Kontesa, M., & Brahmana, R. K. (2018). Cost stickiness effect on firm's performance: insights from Malaysia. Asia-Pacific Management Accounting Journal (APMAJ), 13(1), 1-19.
Lee, J. H., Byun, H. S. & Park, K. S. (2018). Product market competition and corporate social responsibility activities: perspectives from an emerging economy, Pacific-Basin Finance Journal 49, 60–80.
Li, W. L. & Zheng, K. (2017). Product market competiton and cost stickness. Review of Quantitative Finance and Accounting, 49(2), 283-313.
Lin, T.T, Chuo, J. H. (2015).Trade credit and bank loan, evidence from Chinese firms, international review of economics and finance, 36, 17-29.
Liu, Y. C., Chen, H. J. and Su, M. C. (2017). Product market competition, type of mergers, and post-merger performance in Taiwan, Pacific-Basin Finance Journal, 46, 292–308.
McMilan, J. & Woodruff, C. (1999). Interfirms relations and informal credit inVietnam, The Quarterly Journal of Economics, 114 (4), 1285-1320.
Murfin, J. & Njoroge, K. (2014). The implicit costs of trade credit borrowing by large firms, the review of financial studies, 28(1), 112-145.
Norden, L., Udell, G. F. & Wang, T. (2020). Do bank bailouts affect the provision of trade credit?, Journal of Corporate Finance 60. Available at: j.jcorpfin.2019.101522
Petersen, M. A., & Rajan, R. G. (1997). Trade credit: theories and evidence. The review of financial studies, 10(3), 661-691.
Raei, R., Hassan Zade, P., Hashi, M. (2014). Investigation of the effect of financial ratios on cost stickness. Financial accounting, 6(22), 26-44. (in Persian)
Wang, J. (2012). Do firms relations with principal customers/suppliers affect shareholders’ income? Journal of corporate finance, 18(4), 860-878.
Warganegara, D. L., & Tamara, D. (2014). The Impact of Cost Stickiness on the Profitability of Indonesian Firms. International Journal of Social, Behavioral, Educational, Economic, Business and Industrial Engineering, 8(11), 3484-3487.
Yang, X. (2011). The role of credit trade in the recent subprime financial crisis. Journal of economics and business, 63(5), 527-539.