Impact of Risk on Use of Trade Credit: Empirical Evidence from Non-financial Firms in Pakistan

  • Faiza Shah Zhengzhou University, Business School, Zhengzhou, China
  • Yumin Liu Zhengzhou University, Business School, Zhengzhou, China
  • Jaleel Ahmed Zhengzhou University, Business School, Zhengzhou, China
  • Yasir Shah Central University of Finance and Economics, Beijing, China
  • Fadia Shah University of Science and Technology, Chengdu, China

Abstract


The study investigates the behavior of non-financial firms towards the use of trade credit where they have borrowing constraints in a developing economy. In spite of tremendous change in how businesses raise financing, many businesses still use trade credit as an alternative source of financing. The study is helpful in decision making for business schemes to occupy the risk factor in profit generation through the use of trade credit. Due to lack of funding’s for the businesses there is increase in risk the borrower become unable to run the business and therefore want to get finance or goods from any external source that fulfills the objective of the business as the suppliers. Banks require the collateral against the loan offered, as the risky customer has unable to provide any security to be pledged, trade credit serves the best means of short term loan for the customer. The buyer already in risky position tries to find out the short term means that are convenient and less time consuming for the businesses. Panel data has been used for working. The data on which the working is applied consisted of fifteen years i.e: from 2001-2015. The methodology used in the working is the Generalized Method of Moments (GMM). GMM is helpful for the problem raised because of the correlation amount the independent variables and the error term known as endogeneity problem as well as the heterogeneity of firms. J-statistics indicates that the instruments applied in the model are significant.

Published
2018-09-06
How to Cite
SHAH, Faiza et al. Impact of Risk on Use of Trade Credit: Empirical Evidence from Non-financial Firms in Pakistan. Sukkur IBA Journal of Economics and Finance, [S.l.], v. 2, n. 1, p. 55-67, sep. 2018. ISSN 2616-7549. Available at: <http://journal.iba-suk.edu.pk:8089/SIBAJournals/index.php/SIJEF/article/view/201>. Date accessed: 20 apr. 2019. doi: https://doi.org/10.30537/sijef.v2i1.201.

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