The influence of economic policy uncertainty on corporate trade credit and firm value

By S. Jory, Hinh D. Khieu, Thanh N. Ngo, Hieu V. Phan. Journal of Corporate Finance, 2020

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Abstract This research investigates the relationship between government economic policy uncertainty (EPU) and trade credit and its value implication for U.S. public firms. We find that firms curtail their receivables periods and face shorter payables periods from suppliers during high EPU. The impact of trade credit policy changes on firm value is nonlinear. Tightening trade credit during periods of high EPU increases shareholder value only to a certain point, beyond which it is value-destroying since overly reducing trade credit can lead to losing customers to competitors.

Subfields: Accounting, Economics and Econometrics

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