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 In-dian context. The empirical evidence presented suggests that strong evidence exists in support of an inven-tory 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 influ-ence on both accounts receivable and accounts payable.