Why do Pakistani firms invest in accounts receivable? A mixed-methods approach

Purpose The purpose of this study is to explore the reasons behind accounts receivable (AR) investment in Pakistani firms. Design/methodology/approach This study uses an exploratory sequential mixed-methods approach, integrating qualitative and quantitative analyses for a comprehensive perspective. The qualitative phase develops a grounded conceptual framework and includes interviews with chief financial officers from Pakistan Stock Exchange (PSX) listed firms. The quantitative phase analyzes secondary data from non-financial PSX-listed firms from 2009 to 2018. Findings The study reveals that corporate governance, business risk, auditor quality and earnings management significantly influence AR decisions in Pakistani firms, while complexity, sales variations, technology and industry competition do not. Many firms lack formal AR policies, relying on the discretion of board members and chief executive officers. The findings challenge the financial advantage theory, supporting the product quality hypothesis and price discrimination theory, suggesting that established firms may not require credit sales and that firms with higher profit margins invest more in AR. Research limitations/implications This study highlights the importance of implementing country-specific AR policies and utilizing mixed-method approaches in AR research. Policy makers should develop tailored AR policies for emerging markets, particularly Pakistan, by considering each nation’s unique dynamics. Researchers should adopt mixed-methods approach to gain a comprehensive understanding of AR studies, facilitating the design of effective financial policies, legal frameworks and credit management practices. Originality/value The originality and significance of this research reside in its dual-phase methodology, elucidating both qualitative insights and quantitative evaluation of the conceptual model.