The relationship between credit policy and firms’ profitability: empirical evidence from Indian pharmaceutical sector

  • Received December 25, 2019;
    Accepted May 25, 2020;
    Published June 3, 2020
  • Author(s)
    Najib H.S. Farhan ,
    Mosab I. Tabash
    ORCID , Mohammad Yameen
  • DOI
    http://dx.doi.org/10.21511/imfi.17(2).2020.12
  • Article Info
    Volume 17 2020, Issue #2, pp. 146-156
  • TO CITE АНОТАЦІЯ
  • Cited by
    4 articles
  • 1626 Views
  • 572 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

Credit policy plays a vital role in the operational efficiency of credit departments as it reduces the ambiguity of credit departments’ functions by giving clear guidelines and instructions. It also reduces the loan default and speeds up accounts receivable turnover. This paper seeks to evaluate the effect of credit policy on the profitability of pharmaceutical firms listed on the Bombay Stock Exchange (BSE), using a balanced panel data of 82 pharmaceutical firms from 2008 to 2017. The number of days’ collection period and the number of days’ payable deferral period are chosen for measuring firms’ credit policy, while return on assets (ROA) is used for measuring firms’ profitability. It is found that the number of days’ collection period and the number of days’ payable deferral period have a negative and significant effect on the profitability of the pharmaceutical firms, while the control variables leverage, firm size, and age negatively impact the profitability of pharmaceutical firms. Financial managers in pharmaceutical companies should reduce the number of days’ collection period and increase the number of days’ deferral period to reduce the risk of bad debts. Furthermore, they should conduct a credit analysis to evaluate potential clients as it prevents bad debts.

view full abstract hide full abstract
    • Table 1. Variables description
    • Table 2. Descriptive statistics
    • Table 3. Correlation matrix
    • Table 4. Panel diagnostic tests
    • Table 5. Heteroscedasticity and multicollinearity tests
    • Table 6. Regression fixed effects model
    • Methodology
      Najib H.S. Farhan
    • Software
      Najib H.S. Farhan
    • Project administration
      Mosab I. Tabash
    • Supervision
      Mosab I. Tabash
    • Writing – review & editing
      Mosab I. Tabash
    • Conceptualization
      Mohammad Yameen
    • Investigation
      Mohammad Yameen
    • Writing – original draft
      Mohammad Yameen
Related Articles

  • Industrial development in Saudi Arabia: disparity in growth and development

    Anis AliORCID doi: http://dx.doi.org/10.21511/ppm.18(2).2020.03
    Problems and Perspectives in Management Volume 18, 2020         Issue #2         pp. 23-35 Views: 2530 Downloads: 873 TO CITE АНОТАЦІЯ

    Industrial development in any nation plays a vital role in the strengthening of the economy and employs human resources as per specifications and directly towards the mainstream of the nation. In Saudi Arabia, there was rapid industrialization for four decades. Some manufacturing industries performed well, while some internal and external business environment factors influenced the others’ performance. The study focuses on historical development, as well as recent trends of well-performing and poor-performing industries of Saudi Arabia. Small manufacturing industries in Saudi Arabia are underdeveloped and need more attention to attain sustainable and progressive growth rate in the form of the number of establishments to enjoy the potential. Manufacture of tobacco, computer, electronics and optics, pharmaceuticals and transport equipment are the deprived and underdeveloped industries of the manufacturing sector. There should be some easy credit schemes for the development of deprived or underdeveloped manufacturing industries. To attain sustainable growth and development of the manufacturing sector, a positive attitude of the government towards underdeveloped manufacturing industries, favorable labor laws, and entrepreneurial awareness, technical and financial assistance are necessary. The growth and development of the manufacturing sector of Saudi Arabia will be helpful in the attainment of goals of Vision 2030.

  • Why banks should consider ESG risk factors in bank lending?

    Sarwar Uddin AhmedORCID , Samiul Parvez AhmedORCID , Ikramul HasanORCID doi: http://dx.doi.org/10.21511/bbs.13(3).2018.07
    Banks and Bank Systems Volume 13, 2018         Issue #3         pp. 71-80 Views: 2506 Downloads: 977 TO CITE АНОТАЦІЯ

    Why banks should be concerned about incorporating environmental, social and governance (ESG) criteria in the lending process? What is the motivation? This study aims to find the motives for considering environmental, social and governance (ESG) criteria in bank lending process. A primary survey has been conducted to know the current status and motivation for incorporating ESG factors in investment decisions. Sample comprised 30 private commercial banks (PCBs) operating in Bangladesh. Data collected were analyzed with graphs, descriptive statistics, and regression analysis. Findings of the study indicate that banks are mostly considering basic environmental, social and governance factors set by regulators qualitatively. They are lagging behind in considering the advanced ESG criteria needed for sustainable and efficient credit risk management. Based on motivation for incorporating ESG factors, it was found that banks pioneering in incorporating ESG factors in lending decisions are compensated through better financial performance. Findings of the study are expected to encourage practitioners and policy-makers to take more pragmatic steps to incorporate ESG risk factors quantitatively in lending decision-making process.

  • Integrated reporting and financial performance of South African listed banks

    Reon MatemaneORCID , Rozane Wentzel doi: http://dx.doi.org/10.21511/bbs.14(2).2019.11
    Banks and Bank Systems Volume 14, 2019         Issue #2         pp. 128-139 Views: 2448 Downloads: 491 TO CITE АНОТАЦІЯ

    The recent development of integrated reporting intends to address the limitations associated with corporate reporting practices. This paper aims to examine whether a statistically significant relationship exists between integrated reporting quality and financial performance. Secondary data was used, namely the integrated reports and annual financial statements of South African banks listed on the Johannesburg Stock Exchange (JSE) for 2010–2014. For the period 2005–2009, only the financial statements were used, since integrated reporting was not yet mandatory. The research design was longitudinal and it combined qualitative and quantitative methods. Descriptive statistics and Feasible Generalized Least Square (FGLS) were used to explore the relationships between financial performance and integrated reporting quality. The results indicate that there is a positive relationship between integrated reporting quality (IRQ) and earnings per share (EPS). However, there is no significant relationship between IRQ and Tobin’s q (Q-Ratio), IRQ and return on equity (ROE), IRQ and return on assets (ROA) as well as IRQ and economic value added (EVA). Moreover, there are no significant differences on the financial performance of the listed banks before and after the introduction of integrated reporting.

Download Preview
Close
Investment Management and Financial Innovations
Investment Management and Financial Innovations