EFFECT OF CREDIT RATING ON TRADE CREDIT: EMPIRICAL EVIDENCES FROM PAKISTANI NON-FINANCIAL FIRMS

Abstract

This study investigates the relationship between credit rating and trade credit transaction of non-financial firms in Pakistan. Buyers and suppliers moved from traditional trading systems to advancing automated and sophisticated business methods. Although non-financial firms have better access to the financial channel but still they are getting involved in trade credit to increase the market share. This study used panel data of non-financial firms of Pakistan. The data collected from the year 2008 to 2016 from 38 non-financial firms. By using fixed effect model, this study investigates that credit rating significantly affect the trade credit. This study finds that small-size non-financial firms use more trade credit as compared to large-size non-financial firms in Pakistan. Result suggests that large firms are less involve in trade credit because they are free from the problem of liquidity and access to the primary financial channel.