Open AccessTRADE CREDIT POLICY: REVISITING TARGETING OF TRADE PAYABLES AND RECEIVABLES IN BRICS LISTED FIRMS
Author(s) -
Shame Mugova,
Farai Kwenda
Publication year - 2020
Publication title -
eurasian journal of economics and finance
Language(s) - English
Resource type - Journals
ISSN - 2148-0192
DOI - 10.15604/ejef.2020.08.03.005
Subject(s) - accounts payable , trade credit , accounts receivable , panel data , investment (military) , economics , business , estimation , finance , monetary economics , econometrics , management , politics , political science , law , payment
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.