Trade Credit Dynamics: Unveiling Key Determinants and Implications for Sustainable Business Growth

Abstract

This study investigates the key determinants of net trade credit among firms in Pakistan, analyzing the influence of factors such as current assets, cash balance, collateral, equity, growth, stock, operating cycle, return on assets, return on equity, firm size, firm age, and leverage. Using an eight-year data set (2018-2023) from 35 leading companies listed on the Pakistan Stock Exchange, the study employs EViews for statistical analysis, including descriptive statistics, correlation analysis, and regression analysis. The heteroscedasticity test was applied to address data variability issues. The findings reveal that most of the determinants positively and significantly influence net trade credit, with a notable impact from current assets, stock, collateral, ROA, ROE, firm age, and firm size. However, cash balance demonstrated a significant and positive relationship with net trade credit. Conversely, other factors such as leverage showed negative, insignificant effects. This research offers valuable insights for managers, policymakers, and researchers by contributing to the understanding of trade credit dynamics and emphasizing the importance of strategic financial management for sustainable business growth. The study highlights the role of corporate financial practices in fostering long-term sustainability in emerging markets like Pakistan.