Determinants of Trade Credit in Emerging Markets: Firm Behavior in Focus

Abstract

The aim of the study is to examine the determinants of trade credit by utilizing firm-level panel data from non-financial firms in emerging Asian markets over the period 2011–2022. The stduy explores how firm-specific factors affect trade credit decisions from the lens of ageny and signalling theories. All variables are computed from Compustat databse to ensure reliability and consistency. To overcome potential endogeneity issues, Generalized Method of Moments (GMM) econometric technique is used to identify the primary drivers of various forms of trade credit.
Consistent with signaling and agency theories the study found significant association across all forms of trade credit. Profitability reveled a positive assocaiton with provision and net trade credit, while negative associated with trade credit acquisition. Assets tangibility reveled positive assocaition with net trade credit whily negatively with acquisition. Leverage was positively associated with both provision and acquisition while negatively with net trade credit. Similarly, operating growth showed a nagative assocaition with provsion of trade credit. while, R&D was positively associated. Capital expenditures was negatively associated with both provision and acquisition, but positively with net trade credit. Finally, firm size showed a positive association with provision and acquisition, and negative with net trade credit.
The findings offer practical insights for managers and policymakers in emerging Asian markets. By identifying the key determinants of trade credit, ploicymakers can device strategies to inprove financial infrastructures and reduce information asymatery in emrging markets. By understanding the firm level drivers of trade credit, the managers can effectively formulate credit risk management and fiancail planing. Overall, the study contributes to literature by providing new empirical evidence from the context of emerging economies.