Trade Credit Policy: Revisiting Targeting of Trade Payables and Receivables in BRICS Listed Firms

Shame Mugova () and Farai Kwenda ()
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Shame Mugova: Durban University of Technology, South Africa
Farai Kwenda: Eswatini University, Eswatini

Eurasian Journal of Economics and Finance, 2020, vol. 8, issue 3, 183-192

Abstract: The study investigates if firms in BRICS countries pursue a target optimal level of trade credit policy. Trade payables levels may not always at the desired levels and firms take time to adjust from real to target levels. The level of financial sector development may influence firms’ speed and cost adjustment. Employing a dynamic panel data model estimated with the difference and system Generalized Method of Moments estimation techniques on a panel of 3353 listed BRICS non-financial firms, the study established that in pursuit of growth opportunities firms have a deliberate trade credit target levels. Firms pursue a target optimal level of trade payables and trade receivables and firm size affects creditworthiness and access to capital markets, which influences speed of adjustment from current to desired levels of trade payables. Investment in trade receivables require access to capital for additional funding and poorly developed financial sectors makes it costly to adjust towards optimal credit level. Different levels of financial sector development affect access to alternative sources capital which influences optimal trade credit policy.

Keywords: Trade Credit; Financial Sector Development; Trade Payables; Trade Receivables (search for similar items in EconPapers)
Date: 2020
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