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Trade credit, creditor protection and accounting standards: evidence from an international sample
Julio Pindado and Rafael Bastos |
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Trade credit is broadly used by firms around the world. Nevertheless, its use by firms in
different locations is not homogeneous. A possible explanation for this are heterogeneous levels of
creditor protection or quality in accounting systems among the different countries. Both features may
influence the borrowing risk involved in selling goods on credit. Using a dataset containing firms from
13 countries, we explain trade credit policy based on the agency theory, according to which it is a result
of a trade-off between the moral hazard and the adverse selection phenomena. The results from the
estimation show a positive effect of adverse selection on the trade credit extended and a negative effect
of moral hazard on the trade credit extended. Furthermore, our analysis shows that the level of creditor
protection and the accounting system mitigate the negative influence of moral hazard on trade credit.
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