Financial constraints and the speed of adjustment of trade credit extension: the case in an emerging country

Using a sample of listed non-financial firms in Vietnam from 2010 to 2022, this study investigates the dynamics of trade receivables by analyzing the speed of adjustment toward target levels, with particular attention to the moderating effects of Covid-19 and financial constraints. We find that Vietnamese firms do adjust toward their target trade receivables, and this process occurs slightly faster during the Covid-19 period. Furthermore, easing internal financial constraints enhances firms’ ability to close the gap to their target levels more effectively. To our knowledge, this is the first study to examine the effect of financial constraints on trade receivables adjustment speed in the context of a developing country. Finally, we show that Covid-19 exerts a mixed effect on the relationship between financial constraints and speed of adjustment of trade receivables, depending on the proxy of constraint. Based on the research findings, we provide relevant implications for the management of trade credit in a developing country. This study provides novel evidence on the dynamics of trade receivables among listed non-financial firms in Vietnam, an emerging market characterized by underdeveloped financial institutions and pronounced information asymmetries. Unlike prior research, which has predominantly focused on the speed of adjustment of aggregate working capital, this work isolates trade receivables as a critical component and examines how firms converge toward their target levels over time. By incorporating the moderating influences of financial constraints and the unprecedented disruption of Covid-19, the study advances understanding of how firms adapt trade credit policies under varying conditions of internal and external stress. The findings reveal that firms actively manage trade receivables and that this adjustment process accelerates during crises, underscoring the importance of adaptive liquidity management. Additionally, easing internal financial constraints significantly improves firms’ ability to close the gap to their target receivables. This work is among the first to document the mixed effects of Covid-19 on the interplay between constraints and adjustment speed in a developing country context. The research offers actionable insights for policymakers aiming to support trade credit markets and for managers seeking to balance liquidity and customer relationships more effectively under uncertainty.