The Determinants of Trade Credits Among Listed Firms in Ghana

Abstract

The research is geared towards identifying the factors of trade credits amongst listed firms in Ghana. The data used was in panel form from twenty (20) non-financial firms that are listed on the Ghana Stock Exchange between 2006 and 2012 to examine the drivers of trade credits. The three panel regression models used - Pooled Panel Corrected Least Squares model, Random Effects Model and Prais-Winsten Model - produced results which suggested that size and leverage were the two main determinants of trade credits extended and trade credits received, while net trade credit was found to decrease with profitability. The paper recommended that firms must be cautious in extending trade credits to their customers since high default rates by customers could affect the short-term solvency of the firm. Also, profitable firms should consider taking trade credits in order to ease their financial burden in the short term. The lack of trade credit literature and data limited the paper to the Ghanaian context, thus, generalizing the findings to the West African sub-region is not possible. The paper, therefore, suggests that a primary study could be conducted in the future to further understand factors determining trade credits of firms listed and also SMEs that are in West Africa.