Refinancing Risk and Trade Credit: Evidence from Vietnam

This study investigates the relationship between refinancing risk (REFRISK) and trade credit (TC), using data from 1,048 Vietnamese firms covering the period 2010Q1–2024Q1. We test whether REFRISK can have a significant effect on TC. Firms facing higher REFRISKs receive less supplier financing. In particular, a one standard deviation increase in REFRISK leads to a 5.2% decrease in TC. However, during periods of heightened economic uncertainty, such as banking sector shocks and the COVID-19 pandemic, this negative relationship weakens. Suppliers appear to respond to such conditions by extending more favorable credit terms, prioritizing stable relationships, and ensuring supply chain security. These findings align with the adverse selection theory, which suggests that suppliers adjust credit decisions based on observable financial indicators and prioritize relational stability under uncertain conditions. Furthermore, firms with lower cash reserves are disproportionately affected, as constrained liquidity intensifies supplier concerns regarding creditworthiness. This result is consistent with agency theory, which highlights the importance of financial flexibility in mitigating risk perceptions and fostering trust in creditor relationships. These findings highlight the critical role of debt maturity and liquidity management in securing TC and offer valuable implications for both policymakers and suppliers in managing financial uncertainty. JEL Classification D82, G14, G32, M40