DefinePK

Abstract

Trade credit is a business-to-business agreement in which a customer can purchase goods without paying cash up front, and paying the supplier at a later date. Customers utilize trade credit as a financing source while, suppliers consider it as marketing tool in order to increase sales and profitability. Presence of female directors on board are considered as women on board in corporate governance. It has also been enforced by company law recently to include women on board. Due to recent developments, still very limited literature is known about attributes of women in boardrooms. In this study, we are focusing on extension (customer side) of trade credit. As provision of trade credit involves risk hence, all decision makers do not extend trade credit equally. Especially women, who are more risk averse and strict monitors than men. Objectives of study are to know risk averse and monitoring control attributes of women on board while extending trade credits to customers and its overall impact on firm performance.  For this purpose data of KSE-100 index has been collected from 2010 to 2020 of published unconsolidated financial statement of the firms. This study employed GMM as an unbiased estimator in order to control the problems of endogeneity, heteroscesdasity and autocorrelation.   The sample consisted of the firms listed at the KSE-100 Index of Pakistan Stock exchange. This research study only considers 73 non-financial firms and ignored the data of 23 financial firms and also four non-financial firms on account of missing data of five consecutive years. The time period of data is 10 years from the year 2011 to 2020.  This examination used panel data by observing multiple observations in several periods to determine the dynamic economic relationship between variables. The GMM estimator is used to investigate the linear relationship between percentage of women in boardrooms, RASales, RATurn and ROE by using STATA 14. The said estimator addresses the probability of endogeneity, heteroscesdasity and serial autocorrelation issues of the data.  The research result indicates that women in boardrooms tend to be reluctant to extend trade credits to its customers and it suggests that women in boardrooms are strictly assessing financial of customers before extending trade credits. Besides extending trade credits strictly, they try to recover it fast which shows their strict monitoring attribute towards trade credits and which has overall positive impact on firm performance at a certain level. Based on the information, It is also suggested that if the firms are struggling with financial constraints then they should increase number of women in their boardroom in order to improve firm performance.