Uncertainty and Corporate Trade Credit Policy : Evidence from the H1N1 and COVID-19 Pandemics

We show that firms exposed to the H1N1 and COVID-19 pandemics curtail trade receivable days for their clients but also face shorter payment periods for their own trade payables. Moreover, firms with lower financial flexibility experience a larger decrease in trade credits; however, firms with higher operating flexibility adjust their trade credits downward more during the pandemics. Further investigation indicates that, on average, firms’ curtailing of trade credit to their customers enhances shareholder value during the H1N1 pandemic but decreases shareholder value during the COVID-19 pandemic. The differential value effects could be explained by the government funding support and the resilience of the debt market during the latter pandemic. Overall, our evidence highlights the precautionary motive of firms’ trade credit policy in the presence of pandemics