Trade credit and bank credit as alternative governance structures in South Africa: evidence from banking sector development

  • Released On
    Monday, 09 October 2017
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/bbs.12(3-1).2017.05
  • Article Info
    Volume 12 2017, Issue #3, pp. 204-214
  • TO CITE АНОТАЦІЯ
  • 468 Views
  • 100 Downloads

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

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.

view full abstract hide full abstract
    • Table 1. Hausman test results