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Impact of financial development and credit information sharing on the use of trade credit: Empirical evidence from Pakistan

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  • Nisar Ahmad
  • Mian Sajid Nazir
  • Bilal Nafees

Abstract

Pakistan is an emerging economy and characterized by a less developed financial system where trade credit is extensively used by listed manufacturing firms (LMFs). This study is focused to investigate the effect of financial development (FD) and credit information sharing (CIS) on the trade credit used by LMFs. For this purpose, dynamic panel model is estimated by applying system GMM (two-step) estimator on the financial data of 327 manufacturing firms listed in PSX Pakistan for the period 2005–2015. Results of the study reveal that FD and CIS have significant effect on the use of trade credit by LMFs in Pakistan. It is found that increase in financial depth increases the supply of funds to the private sector, and resultantly suppliers provide more trade credit to LMFs. While in response to increase in the lending rate, suppliers reduce the transfer of costly funds to LMFs through trade credit. Furthermore, negative relationship between CIS and the use of trade credit is in accordance with the substitution hypothesis. Results of the study have practical implications for the managers of firms and policy makers alike.

Suggested Citation

  • Nisar Ahmad & Mian Sajid Nazir & Bilal Nafees, 2018. "Impact of financial development and credit information sharing on the use of trade credit: Empirical evidence from Pakistan," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1483466-148, January.
    • Handle: RePEc:taf:oaefxx:v:6:y:2018:i:1:p:1483466
    DOI: 10.1080/23322039.2018.1483466
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    Cited by:

    1. Pattnaik, Debidutta & Hassan, Mohammad Kabir & Kumar, Satish & Paul, Justin, 2020. "Trade credit research before and after the global financial crisis of 2008 – A bibliometric overview," Research in International Business and Finance, Elsevier, vol. 54(C).
    2. Ahmad Ahmad, 2023. "Financial Development, Exchange Rate Stability and Trade in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(11), pages 1552-1557, November.
    3. H. Kent Baker & Debidutta Pattnaik & Satish Kumar, 2022. "Trade credit and firm profitability: Empirical evidence from India," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 3934-3953, October.

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