Macroeconomics

Quantum mechanics

Trade credit

Financial system

Accounts payable

Economics

Payment

Business

Accounts receivable

Trade finance

Physics

Recession

Endogeneity

Politics

Political science

Monetary economics

Econometrics

Finance

Term (time)

Public finance

Investment (military)

Journal of Corporate Finance

We examine the impact of economic policy uncertainty on trade credit. We document a decline (increase) in accounts payable, receivable, and net credit during periods of high (low) policy uncertainty and that firms react quickly to changes in uncertainty. The relation is long-term and holds after controlling for endogeneity, non-policy economic and political uncertainties, and the Great Recession. Industry competitiveness, proxied by firm market power, moderates the impact of economic policy uncertainty on trade credit. Uncertainty about monetary and fiscal policies, taxes, and regulations are the major drivers of trade credit changes. The reduction in trade credit during periods of increasing uncertainty can be explained by financial distress, constraints, and relation-specific investment channels.

Economic policy uncertainty and short-term financing: The case of trade credit