Determinants of Trade Credit: The Case of a Developing Economy

Ahmed, Jaleel; Xia, Hui; Khalid, Jaweria

doi:10.13187/er.2014.83.1694

Cited by 8 publications

(9 citation statements)

References 31 publications

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“…Positive and significant value of the variable state ownership indicates that a percent increase in state ownership would lead to 7 percent increase in trade credit supply. Results of the control variables are line with the previous findings of [8,10].…”

Section: Resultssupporting

confidence: 90%

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Investigation of Trade Credit Patterns in Effect with Bank Loan Availability

Ahmed¹,

Xia²

2017

dtssehs

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Abstract. This research paper attempts to investigate the behavior of non-financial firms towards the use of trade credit. State owned firms are considered as more credit worthy and the bank loan is easily available to them. We hypothesized that the state owned firms do not face any problem to obtain bank loans. According to trade credit literature the firms with better access to bank loans have a better capacity to grant goods on credit. We have also hypothesized that the bank loan availability makes the non-financial firms able to increase the level of trade credit supply. On the other hand, the bank loan availability makes the non-financial firms able to decrease the level of trade credit demand. We have applied Pooled Ordinary Least Square to estimate the relationship between bank loan availability and the behavior of firms towards the use of trade credit. The results of the study explain that bank loan is easily available to state owned firms and they are also interested to extend more trade credit to their buyers. Most of our results are in line with the theories of trade credit and the previous empirical findings.

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Section: Resultssupporting

confidence: 90%

“…Size is natural logarithm of total assets. All formulas and ratios which are used for these control variables are derived from the previous studies [8][9][10][11] on trade credit. Table 2 contains the information regarding relationship between state ownership, bank loan availability and trade credit use.…”

Section: Methodsmentioning

confidence: 99%

Investigation of Trade Credit Patterns in Effect with Bank Loan Availability

Ahmed¹,

Xia²

2017

dtssehs

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“…But there exist different factors that hinder this channel and alternatively affect the financial stability. These factors are the firm's size, tangibility and sales growth ratio (Ahmed et al, 2014;Vaidya, 2011). In addition to these determinants, bank loans can also affect financial stability as scarcity of funds may deteriorate this channel.…”

Section: Review Of Literaturementioning

confidence: 99%

“…The definition and measurement of macroeconomic variables have been extracted from WDI, The World Bank. These ratios have been widely used in the previous studies to determine profitability (Ahmed et al, 2014;Casey & O'Tool, 2019;Yazdanfar & Ohman, 2016). The summary of these variables is presented in Table 2.…”

Section: Variable Specification and Empirical Modelmentioning

confidence: 99%

Trade Credit as a Determinant of Firm’s Financial Performance: Moderating Role of Bank Financing

Farooq

Ahmed

Ashfaq

et al. 2021

Global Business Review

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The objective of study is to find out the impact of trade credit on a firm’s financial performance and how this effect diversifies when enterprises acquire bank loans to finance the trade credit channel. To achieve the objective, we employ the data of 6,654 non-financial-sector firms from 12 Asian economies and apply fixed-effects model to estimate the regression. The statistical output of the model provides consistent evidence that the firms that adjust their trade credit activities through bank financing perform better financially. Acquisition of bank loans to expand the trade credit activities is a healthy financial activity because it provides financial setbacks in case of any fluctuation in trade credit. However, acquiring bank loans when firms have no operational need for such types of funds can disturb their financial health. Briefly, the analysis provides novel evidence that efficient usage of bank loans into physical business activities can intensify financial efficiency of corporate firms. The analysis provides financial guidance to corporate managers that before entering into any trade credit terms, they should ensure the availability of bank loans because it provides a strong financial pace against any financial shock.

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“…Moreover, the growth in trade can significantly increase the spread of infectious diseases, for example, influenza (Adda, 2016). Shah et al (2018) contend that most SMEs are unable to meet their financial needs, which is an alarming sign because SMEs are a key to economic growth, innovation, revenue generation, and employment for day to day workers (Nooteboom, 1994;Verhees and Meulenberg, 2004;Beck and Demirguc-Kunt, 2006) in many sectors of a developing economy, such as manufacturing, services and trade (Ahmed et al, 2014).…”

Section: Key Challenges Faced By Smes In Pakistanmentioning

confidence: 99%

Challenges of small- and medium-sized businesses in Pakistan due to COVID-19 pandemic

Shah

Liu

Shah

et al. 2020

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Relevance. Human health is essential to economic activity and social development. The rapid spread of the coronavirus disease (COVID-19) all around the world can be particularly disastrous for low-income persons, which means that the pandemic poses a severe threat for developing countries. In Pakistan, small and medium enterprises (SMEs) were hit especially hard by the pandemic and lockdown restrictions. This research focuses on the economic challenges faced by Pakistan in combatting the impacts of the pandemic. Research objective.The purpose of the article is to identify the difficulties faced by SMEs as a result of the coronavirus infection Data and methods. The methodological approach presents an analysis of statistical data to show the main problems of the SME sector during the COVID-19 pandemic. The study used the data from the statistical report of the Ministry of Health of the Government of Pakistan (GOP), as well as the data from previous studies on the effects of COVID-19 pandemic. Results. The study identified problems for SMEs during COVID-19, such as the lack of capital and the lack of satisfactory business plans. Moreover, poverty is one of the most serious problems in Pakistan, which is why SMEs cannot afford prolonged isolation during the Covid-19 pandemic and individual entrepreneurs have to risk their lives for their families. The government of Pakistan has adapted steps to control the epidemic, however, so far there is no policy for small business investors. The authorities are still working on the policies for small business units. Conclusions. Although Pakistan has adopted many protective measures, the situation regarding measures to support SMEs still leaves much to be desired.The lack of state support contributes to the general economic crisis the country has faced due to the pandemic.

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Determinants of Trade Credit: The Case of a Developing Economy

Cited by 8 publications

References 31 publications

Investigation of Trade Credit Patterns in Effect with Bank Loan Availability

Investigation of Trade Credit Patterns in Effect with Bank Loan Availability

Trade Credit as a Determinant of Firm’s Financial Performance: Moderating Role of Bank Financing

Challenges of small- and medium-sized businesses in Pakistan due to COVID-19 pandemic

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