Supplier Financing and Earnings Quality

In this paper we investigate the effect of earnings quality on supplier credit in a sample of small and medium‐sized firms. After controlling for other determinants of trade credit, we show that firms whose earnings present lower variability, higher smoothing and predictability, and higher accruals...

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Bibliographic Details
Published in:Journal of business finance & accounting 2014-11, Vol.41 (9-10), p.1193-1211
Main Authors: García-Teruel, Pedro J., Martínez-Solano, Pedro, Sánchez-Ballesta, Juan P.
Format: Article
Language:English
Subjects:
Accruals
accruals quality
Cash flow
Credit
Earnings
earnings predictability
earnings quality
earnings variability
Small & medium sized enterprises-SME
Small and medium sized enterprises
smoothness
Studies
suppliers financing
Trade
trade credit
Trade finance
Volatility
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Summary:In this paper we investigate the effect of earnings quality on supplier credit in a sample of small and medium‐sized firms. After controlling for other determinants of trade credit, we show that firms whose earnings present lower variability, higher smoothing and predictability, and higher accruals quality have access to more trade credit from suppliers. This association suggests that earnings attributes associated to lower volatility and higher precision with respect to cash flows facilitate access to trade credit.
ISSN:0306-686X
1468-5957
DOI:10.1111/jbfa.12090