Financial constraints and the speed of adjustment of trade credit extension: the case in an emerging country

Using a sample of listed non-financial firms in Vietnam from 2010 to 2022, this study investigates the dynamics of trade receivables by analyzing the speed of adjustment toward target levels, with particular attention to the moderating effects of Covid-19 and financial constraints. We find that Vietnamese firms do adjust toward their target trade receivables, and this process occurs slightly faster during the Covid-19 period. Furthermore, easing internal financial constraints enhances firms' ability to close the gap to their target levels more effectively. To our knowledge, this is the first study to examine the effect of financial constraints on trade receivables adjustment speed in the context of a developing country. Finally, we show that Covid-19 exerts a mixed effect on the relationship between financial constraints and speed of adjustment of trade receivables, depending on the proxy of constraint. Based on the research findings, we provide relevant implications for the management of trade credit in a developing country.