IGIDR Working Paper: The Determinants of Trade Credit: Evidence from Indian Manufacturing Firms  

 

No:WP-2011-012

Author:Rajendra R. Vaidya

Title:The Determinants of Trade Credit: Evidence from Indian Manufacturing Firms

Abstract:

Trade credit (accounts receivable and accounts payable) is both an important source and use of funds for manufacturing firms in India. This paper empirically investigates the determinants of trade credit in the Indian context. The empirical evidence presented suggests that strong evidence exists in support of an inventory management motive for the existence of trade credit. Highly profitable firms both give and receive less trade credit. Firms with greater access to bank credit offer less trade credit to their customers. On the other hand, firms with higher bank loans receive more trade credit. Holdings of liquid assets have a positive influence on both accounts receivable and accounts payable.


Key words:trade credit, India


JEL Code(s):G31,G32


Weblink: http://www.igidr.ac.in/pdf/publication/WP-2011-012.pdf