Economic policy uncertainty and short-term financing: The case of trade credit

Ranjan D'Mello and Francesca Toscano

Journal of Corporate Finance, 2020, vol. 64, issue C

Abstract: We examine the impact of economic policy uncertainty on trade credit. We document a decline (increase) in accounts payable, receivable, and net credit during periods of high (low) policy uncertainty and that firms react quickly to changes in uncertainty. The relation is long-term and holds after controlling for endogeneity, non-policy economic and political uncertainties, and the Great Recession. Industry competitiveness, proxied by firm market power, moderates the impact of economic policy uncertainty on trade credit. Uncertainty about monetary and fiscal policies, taxes, and regulations are the major drivers of trade credit changes. The reduction in trade credit during periods of increasing uncertainty can be explained by financial distress, constraints, and relation-specific investment channels.

Keywords: Economic policy uncertainty; Trade credits (search for similar items in EconPapers)
JEL-codes: D80 G20 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (54)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:64:y:2020:i:c:s0929119920301309

DOI: 10.1016/j.jcorpfin.2020.101686

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