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Does trade credit financing matter for stock returns in times of crisis? Evidence from the COVID-19 stock market crisis

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  • Amanjot Singh

Abstract

We examine the role of trade credit financing as a latent feature that becomes important during a crisis period, especially in the wake of the COVID-19 pandemic. Using a sample of 2,092 US firms, our findings support that shareholders pay additional attention to firmsʻ pre-crisis reliance on trade credit financing during a crisis period. While the prior literature document a positive relationship, we find evidence that trade credit financing is negatively related to stock market returns of US firms around the COVID-19-induced market crisis. This negative relationship is robust to several sensitivity tests and restricted to firms with: (1) financial constraints; (2) lower reliance on external financing; (3) higher short-term debt; and (4) higher labor intensity and labor adjustment costs. Trade credit financing contains information about firmsʻ possible financial constraints, external financing, short-term debt, and information asymmetry.

Suggested Citation

  • Amanjot Singh, 2022. "Does trade credit financing matter for stock returns in times of crisis? Evidence from the COVID-19 stock market crisis," Applied Economics, Taylor & Francis Journals, vol. 54(42), pages 4855-4873, September.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:42:p:4855-4873
    DOI: 10.1080/00036846.2022.2036690
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    Cited by:

    1. Singh, Amanjot, 2022. "Oil Price uncertainty and labor investment efficiency," Energy Economics, Elsevier, vol. 116(C).

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