Corporate Governance and Credit Financing in a Developing Economy
Corporate Ownership & Control / Volume 14, Issue 4, Summer 2017
9 Pages Posted: 13 Jun 2019
Date Written: July 25, 2017
Emerging markets have common weaknesses in their financial market development. Financial development is one institutional force that shapes financing and governance of firms in emerging markets. Debt and equity are alternative governance instruments. Trade credit is part of debt and therefore should be treated as such in corporate governance. We used a fixed effect regression of financial sector development and trade credit of firms listed on the Johannesburg Stock Exchange to ascertain the relationship of financial sector development and trade credit. We also analyzed the Socially Responsible Index (SRI) which measures corporate governance. We find that good corporate governance practices do not result in substituting of trade credit, despite its high implicit costs, with bank loans for working capital financing.
Keywords: Corporate Governance, Trade Credit, Financial Sector Development, Implicit Cost
JEL Classification: G30, G39, G19
Suggested Citation: Suggested Citation