International Journal of Finance & Managerial Accounting

International Journal of Finance & Managerial Accounting

Investigating the effect of earnings quality on the company's trade credit with an emphasis on the moderating role of accounting information comparability

Document Type : Original Article

Authors
Mohammed Reza Gorji 1
Hasan Ghodrati 2
Meisam Arabzadeh 3
Hossein Panahian 4
1 Ph.D Student in Accounting, Accounting Group, Kashan Branch, Islamic Azad University, Kashan, Iran
2 Assistant Prof Accounting Group, kashan branch , islamic azad university , kashan , iran
3 Assistant Prof Accounting Group , kashan branch , islamic azad university , kashan , iran.
4 Associate Prof Accounting Group, kashan branch , islamic azad university , kashan , iran
10.30495/ijfma.2023.61989.1682
Abstract
ABSTRACT: The most important concern of credit providers is the timely payment of obligations by clients, since most clients pay their obligations late. For this reason, they should have accurate information from their buyers. The basic question is whether the information is provided to creditors through financial reporting or through other channels of information. Thus, the aim of present study is to investigate the effect of earnings quality on trade credit considering the moderating role of accounting information comparability. To achieve this goal, the financial information of 77 companies listed on the Tehran Stock Exchange from 2014 to 2019 was used. Also, to test the research hypotheses, regression models with panel data structure were used. The results showed that the earnings quality has a positive effect on trade credit. The results also indicated that by increasing the accounting information comparability, the effect of earnings quality on trade credit is intensified.
Keywords
Earnings quality
Financing
Trade credit
Comparability
  • Aflartoon, A and Nemati, N (2018). The Role of Financial Reporting Quality and Disclosure Quality in Increasing Trade Credit: An Approach to Instrumental Variables, Journal of Accounting and Auditing Reviews, Volume 25, Issue 1: 1-20
  • Zivdar, Z, Frooghi, D, Kiani, GH (2020). Investigating the quality and stability of accruals: A text mining approach. Management accounting and auditing knowledge. 9 (35): 169-185
  • Zafari, S; Frooghi, D and Kiani, Gh (2019). The effect of comparability and stability of accounting process on information asymmetry: text mining approach, Scientific Journal of Management Accounting, Volume 12, Issue 41: 133-150.
  • Kia, A; Safari, Graeli, M (2017). Comparability of financial statements, accrued earnings management and actual earnings management. Financial Accounting Knowledge 4 (2): 113-115
  • Mehrvarz, F and Marfoo, M (2015). Relationship between comparability of financial statements and stock price awareness of future earnings. Journal of Empirical Studies in Financial Accounting 12 (49): 83-110.
  • Norwash, I, Mashayekhi, B, and Borghei, Z (2009). Investigating the effect of accruals on earnings quality in companies listed on the Tehran Stock Exchange. Journal of Accounting and Auditing Reviews 1 (1): 31-53
  • Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency costs and ownership structure. the Journal of Finance, 55(1), 81-106.‏
  • Anthony, D., Eric, S., & VigneronT, L. (2015). Does Accounting Information Quality Matter For SMES Use of trade credit. University of valenciennes.‏
  • Barth, M.E., Landsman, W.R., Lang, M. H.,& Williams, C. D.(2013). Effects on Comparability and Capital Market Benefits Of Voluntary Adoption of IFRS By US Firms: Insights From Voluntary Adoption of IFRS By Non-US Firms. Working Paper, Available at http://www.ssrn.com.
  • Bedier, R. E., & H. Abdel-Azim, M. H. (2019). Information processing effects of accounting consistency: Evidence from Egypt. Journal of Research in Emerging Markets, 1(2), 1-15. https://doi.org/10.30585/jrems.v1i2.322
  • Bharath, S.T., Sunder, J. and Sunder, S.V. (2008). “Accounting Quality and Debt Contracting”. The Accounting Review, 83 (1): 1-28.
  • Brochet, F., D. Jagolinzer, A., &J. Riedl, E. (2012). Mandatory IFRS adoption and financial statement comparability. Contemporary Accounting Research (forthcoming). Harvard Business School Accounting & Management . Available at SSRN: http://ssrn.com/abstract=1819482.
  • Chen, A and Gong, J. J. (2019). Accounting comparability, financial reporting quality, and the pricing of accruals. Advances in Accounting: https://doi.org/10.1016/j.adiac.2019.03.003
  • Chen, D., Liu, M., Ma, T., Martin, X(2017). Accounting Quality and Trade Credit. American Accounting Association: Vol. 31, No. 3. DOI: 10.2308/acch-51711.
  • Cheung, A. (Waikong), & Pok, W. C. (2019). Corporate Social Responsibility and Provision of Trade Credit. Journal of Contemporary Accounting & Economics, 100159.
  • Dai, B., & Yang, F. (2015). Monetary policy, accounting conservatism and trade credit. China Journal of Accounting Research, 8(4), 295-313.‏
  • Dechow, P. , Ge, W. , &Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50 (2): 344-401.
  • De Franco, G., Kothari, S., Verdi, R., (2011). The benefits of financial statement comparability. J. Account. Res. 49 (4): 895–931.
  • Enomoto, Masahiro.(2019). The Effect of Corporate Governance on the Relationship between Accounting Quality and Trade Credit: Evidence from Japan. Available at SSRN: https://ssrn.com/abstract=3171338
  • Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2005). The market pricing of accruals quality. Journal of accounting and economics, 39(2), 295-327.‏
  • Haw, I.-M., Hu, B., J. Lee, J.,& Wu, H. (2012). Investor protection and price informativeness about future earnings: International evidence. Review of Accounting Studies, 17(2), 389-419.
  • Klapper, L., Laeven, L., & Rajan, R. (2012). Trade credit contracts. The Review of Financial Studies, 25(3), 838-867.‏
  • LaFond, R., & Watts, R. L. (2008). The information role of conservatism. The Accounting Review, 83(2), 447-478.‏
  • Lin, T. T. & Chou, J. H. (2015). Trade credit and bank loan: Evidence from Chinese firms. International Review of Economics & Finance, 36, 17-29.
  • Li, Xiao and Ng, Jeffrey and Saffar, Walid. (2020). Financial Reporting and Trade Credit: Evidence from Mandatory IFRS Adoption Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3588607
  • Murfin, J., & Njoroge, K. (2015). The implicit costs of trade credit borrowing by large firms. The Review of Financial Studies, 28(1), 112-145.‏
  • Mian S, Smith C. (1992). Accounts Receivable Management Policy: Theory and Evidence. Journal of Finance, 47, 167–200.
  • Peterson, K., Schmardebeck, R., & Wilks, T. J. (2015). The earnings quality and information processing effects of accounting consistency. The accounting review, 90(6), 2483-2514.‏
  • Petersen, M. and Rajan, R. (1997). “Trade Credit: Theories and Evidence”. Review of Financial Studies, 10 (3): 661-691.
  • Raman, K., & Shahrur, H. (2008). Relationship-specific investments and earnings management: Evidence on corporate suppliers and clients. The Accounting Review, 83(4), 1041-1081.‏
  • Shang, Ch. (2020). Trade credit and stock liquidity, Journal of Corporate Finance, 62 101586.
  • Sohn, B.C. (2016). The effect of accounting comparability on the accrual-based and real earnings management. J. Account. Public Policy
  • Sullivan, J. M., & Ravert, G. O. (2006). A Vendor’s Guide to Bankruptcy. Bloomberg Corp. LJ, 2006, 494-499.
  • Stanley Kojo Dary, Harvey S. James Jr.(2020). Trade Credit Contracts, Theories and their Applications: A Synthesis of the Literature‏, Ghana Journal of Development Studies 17 No. 1
  • Velury,U. and D.S.,Jenkins.(2006). Institutional Ownwership and the Earnings quality. Journal of Business Research 59(9):1043-1051.
  • Zhang, Y. (2020). Conditional conservatism and trade credit during the global financial crisis. Journal of Accounting and Public Policy, 106728. doi:10.1016/j.jaccpubpol.2020.