Trade credit and the speed of leverage adjustment

Purpose The purpose of this paper is to examine the impact of trade credit on the speed of adjustment (SOA) of short-term leverage. Bankruptcy cost is higher for over-levered firms, generating a good incentive to use trade credit as a lower cost substitute; hence, firms adjust capital more quickly. Design/methodology/approach Firm-level data are used from five countries, in two different economic orientations, during the period 2000–2017:...