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Factors affecting trade credit in India

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  • Pattnaik, Debidutta
  • Baker, H. Kent

Abstract

Managing working capital, such as trade credit, is essential for operational sustainability and firm growth in emerging markets. Most studies that examine the factors influencing trade credit focus on developed countries, not emerging markets. Our study helps to fill this gap by examining whether corporate governance and firm-specific variables affect India's trade credit. It also provides new insights into the determinants of trade credit receivables and payables in an emerging market. We find a significantly positive association between CEO duality and trade credit receivables. Although centralizing power by Indian firms heightens exposure to operational risk, it may enhance sales and increase profitability. Additionally, managers of firms with centralized control tend to be conservative, reducing their dependence on creditors and alternative financing of their current assets.

Suggested Citation

  • Pattnaik, Debidutta & Baker, H. Kent, 2023. "Factors affecting trade credit in India," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 634-649.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:634-649
    DOI: 10.1016/j.iref.2023.07.005
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    References listed on IDEAS

    as
    1. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-691.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Andreou, Panayiotis C. & Karasamani, Isabella & Louca, Christodoulos & Ehrlich, Daphna, 2017. "The impact of managerial ability on crisis-period corporate investment," Journal of Business Research, Elsevier, vol. 79(C), pages 107-122.
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