Trade Credit and Bank Credit as Alternative Governance Structures in South Africa: Evidence from Banking Sector Development

Banks and Bank Systems (2017), 12 (3), 204-214. doi:10.21511/bbs.12(3-1).2017.05

12 Pages Posted: 6 May 2019

See all articles by Shame Mugova

Shame Mugova

Durban University of Technology (DUT)

Date Written: April 5, 2017

Abstract

Financial sector development is an influential force that outlines the financing and governance of firms in emerging economies. Suppliers and bankers represent alternative governance structures to a firm because of their trade credit and loan requirements, respectively. The continuous monitoring of investment by banks and suppliers impacts on corporate disclosure and practices. The study compares a sample of Johannesburg Stock Exchange (JSE) firms listed on the Socially Responsible Investment (SRI) index which measures corporate governance and those not listed on the index. A Generalized Least Squares (GLS) random effect regression of banking sector development and trade credit of firms listed on the JSE SRI and non-SRI listed firms was done to ascertain whether trade credit gives firms a preferred governance system and structure. The findings affirm that good corporate governance practices improve access to bank loans for working capital financing and good governance practices do not consequently result in more bank loan as a preferred governance structure for working capital financing compared to use of trade credit.

Keywords: corporate governance, trade credit, financial sector development, implicit cost

JEL Classification: G10, G30

Suggested Citation

Mugova, Shame, Trade Credit and Bank Credit as Alternative Governance Structures in South Africa: Evidence from Banking Sector Development (April 5, 2017). Banks and Bank Systems (2017), 12 (3), 204-214. doi:10.21511/bbs.12(3-1).2017.05, Available at SSRN: https://ssrn.com/abstract=3366989

Shame Mugova (Contact Author)

Durban University of Technology (DUT) ( email )

P. O. Box 1334
Durban, 4001
South Africa

HOME PAGE: http://www.dut.ac.za

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