Does Trade Credit Affect Capital Structure Adjustments? A Bayesian Analysis for Listed Firms in Vietnam

Abstract

This paper examines the impact of trade credit on the speed of adjustment (SOA) of the capital structure toward the target leverage of Vietnamese firms. The author measures trade credit as a ratio of accounts payable to total assets. Using data from publicly listed non-financial firms from 2010 to 2021 combined with Bayesian regression, the paper shows that commercial credit accelerates capital structure adjustment. The asymmetric effects of trade credit on SOA of capital structure for firms with above and below target leverage are also demonstrated. Trade credit also promotes faster SOA of capital structure for firms with above-target leverage. The results of the paper imply that Vietnamese firms use trade credit to save cash flow and restore debt ratios to target levels.