Abstract:
Trade credit has been recognized as a crucial source of short-term financing for listed
manufacturing companies. A trade credit contract is a legally binding agreement
between two parties that allows a buyer to purchase goods or services on account and
pay the supplier at a later date. The main purpose of this study to investigate trade
credit as a financing source among listed manufacturing companies particularly the
influence of short-term credit usage on profitability of the companies and to ensure
whether theoretical concepts of trade credit usages are practicable in real business
environment. Ordinary least squares (OLS), fixed-effects and generalized method of
moments (GMM) system models were used to analyze the data using Eveiws. The
sample of this study is all the listed manufacturing companies in CSE during the
period of 2009 to 2017. Initially there were 41 listed companies in the sample and
due to the availability of data 31 listed manufacturing companies were selected for
final analysis. The study provides empirical evidence that profitability significantly
and negatively influenced by trade credit accounts payable and that short-term debt
positively influences. Furthermore liquidity level and firm size are positively related
to profitability, while firm age is negatively related to profitability. The present study
adds to the literature by using OLS, fixed-effects and GMM system models to analyze
a sample in an Asian country where trade credit is considered important financing
instruments
