THE IMPACT OF TRADE CREDIT USE ON CORPORATE PROFITABILITY: THE CASE OF MANUFACTURING FIRMS LISTED ON THE ZIMBABWE STOCK EXCHANGE (2009-2017)
Date
2020-08-25
Authors
GUMBO, NOEL
Journal Title
Journal ISSN
Volume Title
Publisher
UNIVERSITY OF ZIMBABWE
Abstract
The purpose of this study was to examine the impact of trade credit as a source of funding
among manufacturing firms listed on the Zimbabwe Stock Exchange (ZSE) for the period 2009
to 2017. In doing so, panel data collected from financial statements of fifteen manufacturing
firms listed on the ZSE for the period 2009 to 2017 were used. As suggested by the Hausman
Specification Test and Breusch-Pagan Lagrangian Multiplier Test, the study adopted the
Random Effects Model. The study found that trade credit negatively affects firm profitability.
Furthermore, firm size and liquidity were found to have positive impact on firm profitability
while leverage was found to be irrelevant as predicted by the Modigliani-Miller Proposition 1.
Basing on these findings, the study advises manufacturing firms to reduce the use of trade
credit as a financing source by making early payments to their suppliers and opt for the
issuance of debt and equity since leverage had no impact on firm profitability. Apart from that,
manufacturing firms should strive to increase their size by investing in assets with positive Net
Present Value (NPV). Manufacturing firms need to engage in intensive cash management
techniques in order to increase and preserve their liquidity levels.
Description
Financial Economics