FINANCING FIRM GROWTH WITH NET TRADE CREDIT: EMPIRICAL EVIDENCE FROM AN EMERGING ECONOMY Muhammad Younis

Purpose: This study examines the influence of net trade credit on firm growth. While previous research has primarily focused on the impact of trade credit payables on firm performance, this study suggests that firms may use both payables and receivables (net trade credit) as a financing tool to support their growth. Design/Methodology: This study analyzes a sample of non-financial firms listed on the Pakistan Stock Exchange from 2009 to 2019. To address potential reverse causality between net trade credit and firm growth, the Two-Stage Least Squares (2SLS) estimation method is employed to ensure robust results. Findings: The findings indicate that firms actively use net trade credit to finance their growth. Additionally, bank loans negatively affect firm growth, suggesting that firms may face constraints in accessing traditional financing. As a result, these firms rely on trade credit to fund their growth. Originality/Value: This research is novel as it shifts the focus from trade credit payables alone to net trade credit, employing 2SLS estimation to strengthen causal inference. It provides valuable insights for academics, practitioners, and policymakers. Limitations /Future Recommendations: This study is limited to listed non-financial firms in Pakistan, which may reduce the generalizability of findings to other economies. Future research could explore net trade credit's role in private firms, SMEs, or firms in different financial environments.