Impact of Trade Credit on Sales Growth: An Empirical Study Based on Cement Sector of Pakistan

Abstract

Trade credit management is considered very important in the field of finance for most of the firms. This study throws light on the management of current assets and current liabilities in relation to the trade credit. Trade credit has been a growing source of finance of industrial sector in Pakistan. In this study, the main aim is to analyze the role of trade credit in upgradation of cement sector. To achieve this object, data was taken from the annual financial reports of 17 firms listed cement sector in Pakistan Stock Exchange (PSX). The analyses have been carried out by using the data of 8 years, starting from year 2007 to 2014. Apparently not much work has been done to find out the success or failure of the business units selling cement on credit terms under market conditions prevailing in Pakistan. It was interesting to study the relation of trade credit and sales growth with respect to a developing nation like Pakistan. Panel data (fixed effect) model was used for the estimation of results decided on the basis of Hausman test. In addition to use of trade credit as independent variable, control variables (age, size and lagged sales growth) were also added in the model. Findings of the study show that trade credit has very significant positive affect on sales growth of the firms proclaiming the recommendation for the use of trade credit to enhance the revenues.