Presidential economic approval rating and trade credit

Abstract

Trade credit has become crucial for businesses, financial institutions, and policymakers due to the significant role it plays in the economy and financial management. In this paper, we discuss how an important public opinion index, the Presidential Economic Approval Rating (PEAR), impacts a firm's decision to supply trade credit. We find convincing evidence that PEAR is positively correlated with trade credit extension. Furthermore, our results indicate that while business cycle and financial flexibility positively moderate the association between PEAR and trade credit, other factors like market concentration, CEO confidence, and oil supply shocks attenuate their link. Additionally, we observe that consumer sentiment mediates the relationship between PEAR and trade credit. Finally, our findings remain statistically unchanged when we conduct a series of robustness tests using alternative measures and the system generalized method of moments (GMM) technique. In summary, our study provides valuable insights into the considerable influence the general public's perception of the way the President is handling the economy has on corporate decision-making and contributes to the emerging literature on the importance of trade credit.