Trade Payable and Financial Performance of Small and Medium Size Enterprises: Evidence from Cameroon

Abstract

The paper attempts to bridge the gap in the financial literature by offering empirical evidence about trade credit and its effects on financial performance of Cameroon Small and Medium Size enterprises. The study employs panel data methodology (GLS and two step system GMM) on a sample of 58 Cameroon SMEs over the period of six years from 2012 to 2017. Findings indicate that trade payable has a positive relationship with all the measurements of financial performance (Return of assets, Return of equity and Operating profit margin). This outcome implies that, despite the fact that trade payable has both benefits and cost, the benefits surpass the costs in the case of SMEs in Cameroon. The results appear to be consistent with pecking order theory by SMEs in pattern of using trade payable instead of other external source of finance. We strongly recommend that buyer firms should establish a long-term credit relationship with their suppliers to boost their performance.