Effect of Credit Rating on Trade Credit: Empirical Evidences from Pakistani Non-financial sector

Muhammad Kashif (), Jaleel Ahmed, Mubashar Islam and Umar Farooq Gillani
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Muhammad Kashif: Capital University of Science & Technology, Islamabad
Jaleel Ahmed: Capital University of Science & Technology, Islamabad
Mubashar Islam: Capital University of Science & Technology, Islamabad
Umar Farooq Gillani: Capital University of Science & Technology, Islamabad

Sukkur IBA Journal of Management and Business, 2019, vol. 6, issue 1, 1-11

Abstract: This study investigates the impact of a credit rating on firm performance with the mediating role of trade credit of non-financial firms in Pakistan. Even withthe tremendous changes infinancial trend, trade credits still have huge usage. Firms are using trade credit as an informal source of financing in almost all regions of the world. World-renowned companies have access to financial lending, but they also prefer trade credit, it provides them an edge against collateral held at financial institutions. This study use panel data ofnon-financial firms. The data consists of nine years from 2008 to 2016 for 38 non-financial firms. By investigating the mediating role of trade credit results suggest thatlarge firms have a better credit rating that helpsthem to get finance from formal financial institutes at easy terms and conditions. That why they are willing to providetrade credit to other firms that havelimited access to formal finance, that lead to higher firm performance. It is observed that large firms (creditworthy firms) are more involved in trade credit than small firms

Keywords: Trade Credit; Credit Rating; Firm Performance (search for similar items in EconPapers)
JEL-codes: G32 R11 (search for similar items in EconPapers)
Date: 2019
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