Does the stock liquidity drive the trade credit of publicly listed firms in Saudi Arabia?

Abstract

Purpose

This study aims to examine the influence of stock liquidity on the trade credit of publicly listed companies in Saudi Arabia.

Design/methodology/approach

In this study various econometric models were used to test the data of 900 firms listed in Saudi Arabia during the period of 2010–2019.

Findings

The robust results of the various econometric models indicate that firms are more willing to offer trade credit to customers when stock liquidity is greater; however, they are less likely to rely on obtaining more payables from suppliers. The findings further indicate that payables and receivables are indeed related, but not exclusively, in the sense that more payables lead to more receivables. The study also reveals a pattern of persistence in payables and receivables during the period of study.

Research limitations/implications

The sample of the present study is only made up of Saudi listed companies. Future research could extend the sample of this study taking into account listed firms in the Middle East and North Africa (MENA) region as a whole so as to gain more insights from the entire region including oil-producing and non–oil-producing countries. More studies are needed to further examine the impact of alternative options for credit access and their linkage to stock liquidity. Finally the difference in difference (DiD) method of analysis as quasi experimental method can be another extension of this research.

Practical implications

The findings would provide implications for managers and investors by recognizing the potential role of stock liquidity in affecting trade credit and understanding the association between the stock liquidity and trade credit. Management of the firms should look for the ways to enhance the stock liquidity of the firms so as to help in reducing the extreme debts usage and therefore, alternative source of funds can be available accordingly. Once the advantage of stock market is identified, firms' managers should search for chances and policies that can promote stock liquidity and hence make use of the advantages of being liquid.

Originality/value

This paper provides new evidence from the emerging market, particularly the Saudi Arabia. The attempt is one of the first in the region to broaden the knowledge about the effects of stock liquidity on trade credit. It provides market participants with insights on the role of stock liquidity in financial flexibility.

Citation

Bajaher, M. and Shawtari, F.A. (2024), "Does the stock liquidity drive the trade credit of publicly listed firms in Saudi Arabia?", International Journal of Emerging Markets, Vol. 19 No. 2, pp. 456-474. https://doi.org/10.1108/IJOEM-05-2021-0692