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 are found to
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.
