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The Effect of Inventory Leanness on Firms’ Credit Ratings: The Case of Pakistan

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  • Paulo Viegas Carvalho

    (ISCAL, Instituto Superior de Contabilidade e Administração de Lisboa, Instituto Politécnico de Lisboa, Avenida Miguel Bombarda 20, 1069-035 Lisbon, Portugal
    ISCTE, Instituto Universitário de Lisboa (ISCTE-IUL), 1649-026 Lisbon, Portugal
    Business Research Unit (BRU-IUL), Instituto Universitário de Lisboa (ISCTEIUL), 1649-026 Lisbon, Portugal)

  • Sayyed Sadaqat Hussain Shah

    (Faculty of Arts and Social Science, Department of Commerce and Finance, Government College University Lahore, Lahore 54000, Pakistan)

  • Abrish Zaheer

    (Faculty of Arts and Social Science, Department of Commerce and Finance, Government College University Lahore, Lahore 54000, Pakistan)

  • Mário Nuno Mata

    (ISCAL, Instituto Superior de Contabilidade e Administração de Lisboa, Instituto Politécnico de Lisboa, Avenida Miguel Bombarda 20, 1069-035 Lisbon, Portugal
    Business Research Unit (BRU-IUL), Instituto Universitário de Lisboa (ISCTEIUL), 1649-026 Lisbon, Portugal)

  • António Morão Lourenço

    (Polytechnic Institute of Santarém, School of Management and Technology (ESGTS-IPS), 2001-904 Santarém, Portugal)

Abstract

Inventory leanness requires that firms minimize inventory mistreatment and misuse. A firm performance deteriorates because of high inventory misuse, and because of such an issue, the effect on the firm’s credit rating can also be seen. This study examines the effect of inventory leanness on firms’ credit ratings. It aims to create an understanding of the relationship between inventory leanness and the firm’s financial performance and provides insight into the credit rating system of Pakistan. We analyze secondary Pakistan data between 2008 and 2017. Among the sixty firms on Pakistan Stock Exchange that are rated by PACRA, only thirty-eight have complete data available on their respective websites. By using panel data analysis, the results indicate that inventory leanness and credit ratings are positively related. In an added analysis, we evaluate the financial performance in the context of credit rating by using control variables (size, leverage, and capital intensity ratio) and dummy variables (loss and subordinate debt). Our results are consistent with earlier studies.

Suggested Citation

  • Paulo Viegas Carvalho & Sayyed Sadaqat Hussain Shah & Abrish Zaheer & Mário Nuno Mata & António Morão Lourenço, 2022. "The Effect of Inventory Leanness on Firms’ Credit Ratings: The Case of Pakistan," Risks, MDPI, vol. 10(12), pages 1-15, November.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:12:p:226-:d:987857
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    References listed on IDEAS

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    1. Najah Attig & Sadok El Ghoul & Omrane Guedhami & Jungwon Suh, 2013. "Corporate Social Responsibility and Credit Ratings," Journal of Business Ethics, Springer, vol. 117(4), pages 679-694, November.
    2. David A. Ziebart & Sara A. Reiter, 1992. "Bond ratings, bond yields and financial information," Contemporary Accounting Research, John Wiley & Sons, vol. 9(1), pages 252-282, September.
    3. Ala’a Adden Abuhommous & Ahmad Salim Alsaraireh & Huthaifa Alqaralleh, 2022. "The impact of working capital management on credit rating," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-20, December.
    4. Scott, James H, Jr, 1977. "Bankruptcy, Secured Debt, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 32(1), pages 1-19, March.
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