COVID-19 and trade credit speed of adjustment

This paper examines the extent to which COVID-19 affects corporate trade credit policy. We find that COVID-19 significantly accelerates US firms’ convergency speed toward the target trade credit. In addition, we find that firms subject to higher ex-ante operational risk tend to adjust trade credit toward the target faster than those with fewer risk exposures. Overall, our evidence is consistent with the risk avoidance explanation for trade credit policy changes in the presence of adverse shocks.