Impact of Economic Policy Uncertainty on Trade Credit Provision: The Role of Social Trust

Peng Liu and Daxin Dong
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Peng Liu: Department of Finance, Business School, Henan University, Kaifeng 475004, China
Daxin Dong: School of Business Administration, Southwestern University of Finance and Economics, Chengdu 611130, China

Sustainability, 2020, vol. 12, issue 4, 1-24

Abstract: This paper explores the impact of economic policy uncertainty (EPU) on trade credit while taking into account the interactive role of social trust. The analysis is based on the panel data econometric model with fixed effects. Using firm-level data across 16 economies from 1995Q1 to 2015Q1, we find that (i) there exists a negative and highly significant relationship between economic policy uncertainty and the provision of trade credit; (ii) this relation is weaker for firms in countries with higher levels of social trust; and (iii) the effects of EPU and social trust are both more substantial for firms in more financially constrained industries. The impact of social trust is not a result of people’s high confidence in government, an effective legal system of enforcing contracts, a high-quality institutional system or an excellent system of protecting shareholders. Our result is robust if we exclude business cycle effects or use an alternative measure of financial constraints.

Keywords: economic policy uncertainty; trade credit; social trust; financial constraint (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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