1. COURSE TITLE: SEMINOR IN FINANCE COURSE CODE: MPH 622
Presentation on
A Survey and Analysis of Receivables Practices
in American Corporations
by:
Cecillia Wagner Ricci, Seton Hall University, USA
Published in: Financial Practice and Education, Fall/Winter (1999)
May 6, 2011

2. Presentation Outline
Purpose and motivation
Research Methodology
Respondents Profile
Major Findings
Critical appraisal

3. Purpose & motivation
To obtain information on whether firms are
maximizing the value of their shareholders’
wealth in the area of receivables.
In another terms, to test the objective function
as maximization of shareholders wealth in
terms of areas of receivables

4. Purpose & motivation…..
Financial theory
Motivation of the study
Objective of the
firms
Existing research
gap (review based)

5.  Population: Listed firms in the 1996 Business Week
Global 1000.
 Sample: 200 American firms
 Response rate: 44.5% (89/200)
 Respondents: Credit managers
 Study period: 1996
 Focus of the study: Receivable management in presale,
postsale and ongoing issues.
Methodology

6. Profile of respondent
Remarks: Majority are managers, followed by controller and VP of finance
Remarks: 7 industries, Largest from consumer goods industry, followed
by technology industry, and the least transportation industry

7. Profile …………..
Only the assets
value is
significantly
different
ROE is higher in
respondent group
but it is not
significant
The indicators; market value, sales,
profits: as well as assets are lower in
respondent set and higher in non-
respondent set.

8. Profile …………..
55.1% of the respondents do not have any of their receivables automated, followed by 34.8% of
respondents in range 81-100 percentage automated, and the least is no respondents in class 21-40.
45.9% have percentage overdue in range 1-20, followed by any of their percentage overdue for
30.3% of respondents, and the least respondents lie on 61-80 class.

9. Profile …………..
Only 10.1% of
respondent outsource
some of the receivables
process,
Only 2.2%
factor the
receivables
1.1% (1/89)
or only 1
respondent
pledge the
receivables
Further use of receivables (Outsourcing the receivables, Factoring & Pledging),

10. Major findings…..
Presale issues
 Using different methods for determining to
whom to grant credit, firms are not maximizing
shareholders’ wealth in terms of receivables.
Obtaining information from more than one
sources impact against the objective function.

11. Major findings…..
The association between past dues and credit
investigating costs shows the maximization of
shareholders wealth.
Majority of the respondents set credit limit for
their customers, supported by statistically
significant relationship between credit limit and
past due, that maximize the function.

12. Major findings…..
Postsale issues
Based on due date and postmark date survey,
US firms are receiving payments more quickly so
that maximize the objective function. But, it is
not free of response bias.
The use of more than one method for payment
collection, speed the collections that support the
goal of maximizing the shareholders wealth or
increase the cash inflows.

13. Major findings…..
Ongoing issues
The use percentage of sales method to forecast
the receivables results, decrease in administrative
costs and finally maximize the wealth.
The association in two standard deviation
between monitoring the credit and past dues
accounts, confirmed the maximization of wealth.

14. Major findings…..
 The significant relation between number of
methods use for reporting to management and
existence of past due accounts support the
objective function.

15. No sig.; Not
maximizing
No sig.; Not
maximizing
Sig.; max.
wealth
Sig.; max.
wealth
Sig.; max.
wealth
In Sum…..
Setting credit limits, monitoring receivables and
reporting to management are in favor of
maximizing shareholders wealth i.e. minimization
of cost , or increase cost and progressively
accelerate the wealth.
Two variables are
against the objective
function i.e. only
increase
administrative cost!

16. Strength
The simple methodology of analysis provides the
elementary insight regarding the working capital
management practices in corporate America.
Specifically, this study is very much useful for early
practitioners, academic people, and with the same
extent it helps to researchers.
Critical appraisal

17. Weaknesses
The study bear the pitfalls of the survey
methodology, thus the generalization of the
results might not be possible, and depends on
few samples.
The responses tend to clusters usually in the
same magnitude in majority of the response
options. For instance, the responses usually
sticks on 70-80% range, may be due to small
sample size.

18. Thank you.