Economic policy uncertainty and trade credit: international evidence

This paper examines the impact of Economic Policy Uncertainty (EPU) on corporate trade credit policies, utilizing an international dataset spanning 20 countries from 1999 to 2019. Our analysis reveals that firms adjust by increasing the provision of trade credit to their customers during periods of heightened EPU. By investigating firm-level dynamics, we identify the influence of inventory composition and financial constraints on trade credit financing in the context of rising EPU. We document that the market devalues firms that offer and accept trade credit during periods of rising EPU. At the country level, institutional characteristics such as governance quality and financial market efficiency significantly moderate the relationship between EPU and trade credit. Our findings highlight the role of trade credit as a mechanism for managing liquidity during uncertain times.