IMPACT OF TRADE CREDIT ON FIRM’S PERFORMANCE: A STUDY OF TEXTILE SECTOR OF PAKISTAN

Abstract

Purpose The key purpose ofthis study is to present up-to-date and comprehensive assessment ofthe literature on trade credit, firm’s liquidity, firm’s size, and firm’s age and their impact on profitability oftextile firms, listed in Pakistan Stock Exchange (PSX). Methodology & Design For the purpose of analyzing impact of trade credit on firm’s performance, the selected sample is 106 textile manufacturing firms listed on Pakistan stock exchange who use trade credit facilities during the time period 2006-2020. The purposed hypothesis was tested through, statistical tool used for analysis, Eviews. Different test was used to test the data including descriptive statistics, correlation analysis, Hausman test and Panel least regression method. Findings The key findings ofthe study illustrates that positive relationship exist between trade credit andfirm’s performance. The results of descriptive analysis demonstrate that all four purposed hypothesis are accepted. The findings revealed that allfour independent variable, trade debt, liquidity, firm's size and firm’s age, have positive impact onfirm’s profitability. The results ofthis study second the results ofmost oftheprevious studies. Limitations Firstly, the findings ofthis study could not be applicable for other sectors as every industry has their own way of doing business. Another limitation is that the trade credit could be used for receivable or payable purposes, but we have only focused on receivable side of trade credit which might have biased results. The study has studied limited variables; there are various other factors that can affect the relationship of trade credit and profitability offirm and can be studied in future studies. Recommendations The study offers fundamental guidelines for firms to promote and improve the trade credit policies to encourage their profitability. Firms must increase their trade credit offerings to increase their profitability. As a result, customers and investors will be able to trust the company. It is very important for agement and policymakers to keep all the pros and cons oftrade credit in their mind while offering trade credit.