Effect of country governance on trade credit activities: Empirical evidence from Pakistan

Figures & data

Table 1. Description of variables

Acronyms	Variable	Role	Measurement	References
APR	Trade Payable	Dependent	Account payable/cost of goods sold	Costa and Habib (2021), D’Mello and Toscano (2020) Dary & James, (2019)
ARR	Trade Receivable	Dependent	Account receivable/total sales	Costa and Habib (2021), D’Mello and Toscano (2020) Dary & James, (2019)
AGI	Aggregate governance index	Independent	Voice and accountability Political stability Government effectiveness Regulatory quality Rule of law Control of corruption	Almaskati et al. (2020), Çam and Özer (2022), Saona and Martín (2016)
DTR	Debt ratio	Control	Total debt/total assets	Chen et al. (2019)
FS	Firm size	Control	Log (total assets)	Lawrenz and Oberndorfer (2018)
SGR	Sales growth ratio	Control	(Current year sales-last year sales)/last year’s sales	Chen et al. (2019)
RIR	Real interest rate	Control	Real interest rate (%)	Al-Hadi & Al-Abri, (2022)
IFR	Inflation rate	Control	Inflation, consumer prices (annual %)	D’Mello & Toscano (2020)
DCP	Financial development	Control	Domestic credit to the private sector by banks (% of GDP)	Ahmed & Farooq (2020)

Source: previous studies.

Table 2. Endogeneity testing

Wald Test
Test Statistic	Value	df	Probability
F-statistic	9.488	(9, 970)	0.000
Chi-square	85.392	9	0.000
Null Hypothesis Summary
Normalized Restriction (= 0)		Value	Std. Err.
C (1)		0.631	0.145
C (2)		0.886	0.530
C (3)		0.079	0.256
C (4)		−0.168	0.145
C (5)		−0.229	0.207
C (6)		−0.029	0.023
C (7)		0.031	0.007
C (8)		−0.054	0.021
C (9)		0.002	0.001

Null hypothesis: Restrictions are linear in coefficients. Source: self-estimation.

Table 3. Descriptive analysis

	Mean	Median	Std. Dev.	Maximum	Minimum	Observation
APR	0.136	0.100	0.123	0.853	0.010	2110
ARR	0.168	0.129	0.143	0.879	0.010	2110
AGI	−1.060	−1.030	0.075	−0.970	−1.180	2110
DTR	0.338	0.330	0.187	0.886	0.010	2110
FS	1.914	1.802	0.107	3.568	0.060	2110
SGR	0.031	0.026	0.121	0.899	−0.686	2110
RIR	2.888	4.020	0.171	7.125	−4.367	2110
IFR	7.496	7.189	0.137	12.938	2.529	2110
DCP	16.461	15.570	0.110	21.288	14.579	2110

Acronyms: APR = account payable ratio, ARR=account receivable ratio, AGI=aggregate governance index, DTR= debt ratio, FS= firm size, SGR=sales growth ratio, RIR= real interest rate, IFR=inflation rate, DCP=financial development. Source: own estimation.

Table 4. Correlation analysis

	APR	ARR	AGI	DTR	FS	SGR	RIR	IFR	DCP
APR	1.000
ARR	0.304a	1.000
AGI	.173 a	0.157 ^a	1.000
DTR	−.100	−0.059 ^a	−0.030 ^c	1.000
FS	−.046 b	0.163 ^a	0.078 ^a	−0.023 ^b	1.000
SGR	−.183 a	−0.114 ^b	−0.197 ^a	0.007 ^a	0.015 ^a	1.000
RIR	−.014 a	0.046 ^a	0.070 ^a	−0.002 ^a	0.005 ^a	−0.152 ^c	1.000
IFR	−.122 a	−0.070 ^a	−0.602 ^a	0.081 ^a	−0.056 ^a	0.129 ^b	−0.170 ^a	1.000
DCP	−.124 c	−0.089 ^a	−0.470 ^b	0.081 ^c	−0.051 ^b	0.222 ^a	−0.064 ^a	0.741 ^a	1.000

Acronyms: APR = account payable ratio, ARR=account receivable ratio, AGI=aggregate governance index, DTR= debt ratio, FS= firm size, SGR=sales growth ratio, RIR= real interest rate, IFR=inflation rate, DCP=financial development. Source: own estimation. Notes: a, b, and c reveal the significance level at 1%, 5%, and 10% levels.

Table 5. Effect of country governance on account payables

	Account payables as a dependent variable (Testing Equation 1(1) $AP{R}_{it}={\beta }_{\circ }+{\alpha }_{1}AG{I}_t+{\alpha }_{2}VA{A}_t+{\alpha }_{3}PO{S}_t+{\alpha }_{4}RO{Q}_t+{\alpha }_{5}CO{C}_t+{\beta }_{1}DT{R}_{it}+{\beta }_{2}F{S}_{it}+{\beta }_{3}SG{R}_{it}+{\gamma }_{1}RI{R}_t+{\gamma }_{2}IF{R}_t+{\gamma }_{3}DC{P}_t+{\mu }_i+{\phi }_t+{\epsilon }_{it}$(1) )
	Generalized least square (GLS)		Generalized Method of Moments (GMM)
	Coefficients	Probability	Coefficients	Probability
C	0.457***	0.000	−1.444***	0.022
APR (−1)	-	-	0.816***	0.000
AGI	0.373***	0.016	0.182***	0.026
VAA	0.102	0.364	0.832***	0.024
POS	0.044**	0.051	1.059***	0.024
ROQ	0.013	0.918	0.192***	0.009
COC	−0.078***	0.042	−0.745***	0.033
DTR	−0.050***	0.000	0.037	0.128
FS	0.013***	0.000	−0.002	0.714
SGR	−0.062***	0.000	−0.340***	0.014
RIR	−0.007	0.415	0.008***	0.012
IFR	0.001	0.444	−0.033***	0.020
DCP	−0.001	0.683	−0.038***	0.022
Adjusted R-square		0.426	0.448
S.E of regression		0.116	0.095
Prob. (F-statistics)		0.000	-
J-statistics		-	0.495

Acronyms: APR = account payable ratio, AGI=aggregate governance index, VAA= voice, and accountability, POS= political stability, ROQ= regulatory quality, COC= corruption control, RIR= real interest rate, IFR=inflation rate, DCP=financial development Note: ***, **, * reveal the significance level at 1%, 5%, and 10% level. Source: self-estimation.

Table 6. Effect of country governance on account receivables

	Account receivables as a dependent variable (Testing equation 1(1) $AP{R}_{it}={\beta }_{\circ }+{\alpha }_{1}AG{I}_t+{\alpha }_{2}VA{A}_t+{\alpha }_{3}PO{S}_t+{\alpha }_{4}RO{Q}_t+{\alpha }_{5}CO{C}_t+{\beta }_{1}DT{R}_{it}+{\beta }_{2}F{S}_{it}+{\beta }_{3}SG{R}_{it}+{\gamma }_{1}RI{R}_t+{\gamma }_{2}IF{R}_t+{\gamma }_{3}DC{P}_t+{\mu }_i+{\phi }_t+{\epsilon }_{it}$(1) )
	Generalized least square (GLS)		Generalized Method of Moments (GMM)
	Coefficients	Probability	Coefficients	Probability
C	0.498***	0.000	−0.624***	0.000
ARR (−1)	-	-	0.987***	0.000
AGI	1.299***	0.000	1.783***	0.027
VAA	0.032	0.781	1.549***	0.030
POS	0.208***	0.001	0.745	0.225
ROQ	0.405***	0.001	0.212***	0.000
COC	0.294***	0.002	0.563***	0.029
DTR	0.009	0.411	−0.019	0.338
FS	0.033***	0.000	0.005	0.352
SGR	0.028***	0.009	0.255*	0.101
RIR	0.001	0.866	0.002**	0.056
IFR	−0.004***	0.011	−0.015	0.390
DCP	−0.008***	0.004	0.006***	0.017
Adjusted R-square		0.302	0.662
S.E of regression		0.135	0.082
Prob. (F-statistics)		0.000	-
J-statistics		-	0.178

Acronyms: ARR = account receivable ratio, AGI=aggregate governance index, VAA= voice, and accountability, POS= political stability, ROQ= regulatory quality, COC= corruption control, RIR= real interest rate, IFR=inflation rate, DCP=financial development Note: ***, **, * reveal the significance level at 1%, 5%, and 10% level. Source: self-estimation.

Table A1. Robustness analysis effect of country governance on trade credit

	Fixed effect Model
	Account Receivables		Account Payables
	Coefficients	Probability	Coefficients	Probability
C	0.403***	0.000	0.556***	0.000
AGI	1.230***	0.000	0.908***	0.025
VAA	−0.052	0.688	0.047	0.786
POS	0.198***	0.009	−0.160	0.112
ROQ	−0.221	0.112	−0.167	0.363
COC	0.365***	0.000	−0.184*	0.098
DTR	0.053***	0.008	−0.087***	0.001
FS	0.101***	0.000	0.015	0.604
SGR	0.048***	0.000	−0.068***	0.000
RIR	0.003	0.718	−0.001	0.192
IFR	0.003***	0.040	0.002	0.321
DCP	−0.011***	0.001	−0.006	0.154
Adjusted R-square		0.768	0.512
S.E of regression		0.068	0.089
Prob. (F-statistics)		0.000	0.000

Acronyms: ARR = account receivable ratio, AGI=aggregate governance index, VAA= voice, and accountability, POS= political stability, ROQ= regulatory quality, COC= corruption control, RIR= real interest rate, IFR=inflation rate, DCP=financial development Notes: ***, **, * reveal the significance level at 1%, 5%, and 10% level. Source: self-estimation.

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