Relevance. Most small-sized firms have little or no access to credit markets, which is why they prefer equity financing and usually pay higher dividends on this equity. When paying higher dividends, these small-sized debt-free firms continue to build a reputation in the markets.Research objective. The analysis focuses on the trade payables that impact shareholder equity. In Pakistan, most of the businesses are small and middle-sized. Most of the Pakistani SMEs have a low capital structure and these enterprises depend on their daily business needs, so equity financing is their primary source of funding.Data and Methods. The data source for our study is the financial statements of non-financial firms (in total, 156 firms) from the balance Sheet Analysis (BSA) and the Financial Statement Analysis (FSA) published by The State Bank of Pakistan (SBP). The financial statements also provide the data listed by the Pakistan Stock Exchange (PSX). The data cover the period from 2001 to 2017. This study primarily relies on the panel data model. The study applied the methods of descriptive analysis, correlation matrix, common regression model, fixed effect model, random effect model and then the Hausman test was performed to choose the best model.Results. The results of the study indicate a positive and significant relationship between shareholder equity and trade credit demand.Conclusion. Many investors require trade credit as a suitable tool for the growth of shareholders of the company. It is also used in many types of business schemes as the shareholder equity factor plays a role in profit generation through the use of trade credit transactions.