Financial Constraints and the Use of Trade Credit: Evidence from Pakistan
The purpose of this study is to identify whether financially constrained firms use trade credit (payables and receivables) as a channel to finance their operations. The previous literature mainly investigated the role of trade credit in various aspects of a firm’s performance. We argue that, since f...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | Russian |
| Published: |
Government of the Russian Federation, Financial University
2024-03-01
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| Series: | Финансы: теория и практика |
| Subjects: | |
| Online Access: | https://financetp.fa.ru/jour/article/view/2688 |
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| Summary: | The purpose of this study is to identify whether financially constrained firms use trade credit (payables and receivables) as a channel to finance their operations. The previous literature mainly investigated the role of trade credit in various aspects of a firm’s performance. We argue that, since firms with limited financial capabilities usually have limited or no access to the long-term debt market, they can better be expected to rely on short-term financing, such as trade credit. We use Kaplan and Zingales index (KZ Index 1997) to measure the level of firms’ financial constraints. The fixed-effects panel regression methodology was applied to a sample of non-financial firms listed on Pakistan Stock Exchange over eleven years from 2009 to 2019. The results of this article show that financially constrained firms use trade credit as a financing channel for their operations. We further found that firms with higher profit margins use more trade credit while those that have higher assets turnover use fewer loans. |
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| ISSN: | 2587-5671 2587-7089 |