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Economic policy uncertainty and trade credit: international evidence

Author

Listed:
  • Athira A

    (Indian Institute of Management Bangalore)

  • Vishnu K

    (Amrita School of Business, Amrita Vishwa Vidyapeetham)

  • Rajeev A

    (Indian Institute of Management Raipur)

Abstract

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.

Suggested Citation

  • Athira A & Vishnu K & Rajeev A, 2025. "Economic policy uncertainty and trade credit: international evidence," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 49(2), pages 613-660, June.
    • Handle: RePEc:spr:jecfin:v:49:y:2025:i:2:d:10.1007_s12197-025-09718-w
    DOI: 10.1007/s12197-025-09718-w
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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