Abstract
AbstractThe study examines the relationship between stock liquidity and the firms' extension and use of trade credit. In addition, this study examines the impact of financial constraints and dependence on external financing on the relationship between stock liquidity and trade credit. The study is based on secondary data of non‐financial Indian companies obtained from Center for Monitoring of Indian Economy Prowess database, pertaining to a period of 18 years (2000–2018). This study employs two‐step generalized method of moment's technique to arrive at results. Results of study confirm that firms with more liquid stock tend to provide more trade credit to their customers and also reduce the use of expensive trade credit financing from suppliers. Further, we find that higher stock liquidity is associated with significantly longer receivable period and shorter payable period for firms facing high financial constraints and also for firms with high external financial dependence.
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