DOES COMMERCIAL CREDIT GRANTING IN BRAZIL IMPROVE PROFITABILITY?
DOI:
https://doi.org/10.4270/ruc.2023116Keywords:
Business strategy, Commercial credit granting, Profitability, Brazilian public companiesAbstract
The study examines the relationship between commercial credit granting (CCG), one potential element of the business strategy, and the profitability of companies, measured by the return on assets (ROA). The sample consisted of 2,090 observations of publicly traded Brazilian companies. Data were analyzed in a panel, primarily with fixed effects, indicating both a positive relationship between CCG and ROA and differences between three economic sectors – primary, intermediate, and final goods. However, due to concerns about endogeneity, a fixed effects model with instrumental variables was estimated. Thus, the positive relationship between CCG and ROA was confirmed. Furthermore, unlike previous studies, a negative quadratic relationship was also found. There was a greater positive impact on companies whose value granted for commercial credit is proportionally smaller in relation to total assets. However, the difference in relations between economic sectors was not confirmed. There is theoretical contribution to the field of business strategy through actions that involve commercial credit risk assessment, which generate integrated actions of the financial and commercial functions. The practical contribution resides in the financial managers' optimization of cash flows and in encouraging more careful and punctual practices in granting commercial credit.
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