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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| Format: | Article |
| Language: | Russian |
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Government of the Russian Federation, Financial University
2024-03-01
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| Series: | Финансы: теория и практика |
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| Online Access: | https://financetp.fa.ru/jour/article/view/2688 |
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| author | M. Younis M. J. Khan M. Y. Khan |
| author_facet | M. Younis M. J. Khan M. Y. Khan |
| author_sort | M. Younis |
| collection | DOAJ |
| description | 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. |
| format | Article |
| id | doaj-art-0b68e22e28804b00b5eebbfec28eae95 |
| institution | DOAJ |
| issn | 2587-5671 2587-7089 |
| language | Russian |
| publishDate | 2024-03-01 |
| publisher | Government of the Russian Federation, Financial University |
| record_format | Article |
| series | Финансы: теория и практика |
| spelling | doaj-art-0b68e22e28804b00b5eebbfec28eae952025-08-20T03:00:41ZrusGovernment of the Russian Federation, Financial UniversityФинансы: теория и практика2587-56712587-70892024-03-0128116617610.26794/2587-5671-2024-28-1-166-1761122Financial Constraints and the Use of Trade Credit: Evidence from PakistanM. Younis0M. J. Khan1M. Y. Khan2COMSATS University IslamabadCOMSATS University IslamabadCOMSATS University IslamabadThe 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.https://financetp.fa.ru/jour/article/view/2688financial constraintstrade creditkz index |
| spellingShingle | M. Younis M. J. Khan M. Y. Khan Financial Constraints and the Use of Trade Credit: Evidence from Pakistan Финансы: теория и практика financial constraints trade credit kz index |
| title | Financial Constraints and the Use of Trade Credit: Evidence from Pakistan |
| title_full | Financial Constraints and the Use of Trade Credit: Evidence from Pakistan |
| title_fullStr | Financial Constraints and the Use of Trade Credit: Evidence from Pakistan |
| title_full_unstemmed | Financial Constraints and the Use of Trade Credit: Evidence from Pakistan |
| title_short | Financial Constraints and the Use of Trade Credit: Evidence from Pakistan |
| title_sort | financial constraints and the use of trade credit evidence from pakistan |
| topic | financial constraints trade credit kz index |
| url | https://financetp.fa.ru/jour/article/view/2688 |
| work_keys_str_mv | AT myounis financialconstraintsandtheuseoftradecreditevidencefrompakistan AT mjkhan financialconstraintsandtheuseoftradecreditevidencefrompakistan AT mykhan financialconstraintsandtheuseoftradecreditevidencefrompakistan |