Trade Credit Management and Profitability of Jordanian Manufacturing Firms

Abstract

The significant role of Small and Medium Enterprises (SMEs) in the growth of the economy has been well-documented in the past few decades. Studies in literature have focused on the reasons behind the trade credit offerings and acceptance of SMEs, but empirical findings revealing the positive relationship between trade credit itself and profitability is still limited. Thus, in this paper, the trade credit effect on the profitability of SMEs from the side of supply and demand is examined. The paper focused on 38 SMEs in Amman Stock Exchange (ASE) for the years from 2009 to 2021. The obtained findings showed a positive relationship between accounts payable and profitability, which indicates that SMEs should establish long-term relationships with their suppliers to maintain credit. However, no clear relationship was found between accounts receivable and profitability, represented by ROE and ROA. Furthermore, financial leverage and size were revealed to impact the profitability of SMEs.