Determinants Of Trade Credit Supply: The Case Of Non-financial Firms Of Pakistan
Author: Jaleel Ahmed

I have investigated the trade credit supply determinants of non financial firms listed in Karachi Stock Exchange, Pakistan. The number counts for 156 firms in 13 sectors with 11years data from 2001-2011. Defining the term Trade Credit we may refer to Brennan et al. (1988) who defines it as the separation between the delivery of goods and their payments. Trade credit is divided in two terms naming accounts receivables; refers to the supply of trade credit and accounts payable; refers to trade credit demand. Different authors have suggested that the motives for trade credit use include financial advantages, price discrimination autonomy as commercial motives and reducing inventory costs as operating motives to name a few. It is affected by two types of factors including firm specific characteristics and macroeconomic conditions. This study investigates the following variables firm specific conditions includes firm size, liquidity, product quality, price discrimination and macroeconomic conditions include GDP. Our results show that all the variables are significantly related to trade credit which means that these variables do determine the supply of trade credit. Regarding the macroeconomic variable, GDP had a negative relationship with trade credit supply which means that in reduced performance of the financial sector, people move towards trade credit. Secondly, discussing the firm specific characteristics firms’ size is negatively related to trade credit supply meaning that large firms do not supply trade credit. Also there is a negative relationship of trade credit supply with liquidity which suggests that firms which do not possess much liquid assets would prefer to supply goods on credit. As the variable of price discrimination is concerned, firms use trade credit as a tool for discriminating prices among their customers. Lastly, trade credit is used to vii market their product quality as firms would supply trade credit when they want their customers to confirm their quality and if they possess high quality products, they would extend more sales on credit. Our study concludes that firms should device their trade credit policy taking in account these findings that which variables would have weight in suggesting their success for trade credit supply. Also I have mentioned the limitations and future research directions in our final thoughts of this study. Supervisor:- Dr. Arshad Hassan

Meta Data

Keywords : Credit Supply, Non Financial Firms, Non-financial Firms-Pakistan, Trade, Trade Credit Supply
Supervisor: Arshad Hassan

Related Thesis​