Conditional Conservatism and Trade Credit During the Global Financial Crisis

Publikation: Bidrag til tidsskriftTidsskriftartikel

Abstrakt

We investigate conditional conservatism and firms’ access to trade credit during the 2007–2008 global financial crisis. Previous studies argue that suppliers prefer conservative customers because of information asymmetry in production networks; we extend this line of research by focusing on trade credit during the 2007–2008 global financial crisis, a period that was characterized by a credit supply shock. We first document a positive association between conditional conservatism and firms’ access to trade credit both before and after the onset of the crisis, which indicates suppliers’ demand for conditional conservatism. Meanwhile, the association between conditional conservatism and trade credit experienced a significant decline following the onset of the crisis, and this only held when suppliers and customers had frequent transactions or were in close proximity, when transacted goods were standardized rather than differentiated, when customers were financially constrained and had high bargaining power, and when suppliers had sufficient liquidity. It implies that, when information asymmetry along the supply chain was low and customers had strong bargaining power, liquid suppliers increased their tolerance to less conservative customers, and they were even willing to grant trade credit to the less conservative customers that were financially constrained. Overall, this study adds to previous literature by demonstrating suppliers’ multifaceted demand for conditional conservatism.
OriginalsprogEngelsk
Artikelnummer106728
TidsskriftJournal of Accounting and Public Policy
Antal sider18
ISSN0278-4254
DOI
StatusUdgivet - 18 mar. 2020

Bibliografisk note

Epub ahead of print. Published online: 18. March 2020

Emneord

  • Conditional conservatism
  • Trade credit
  • Supply chain
  • Financial crisis

Citationsformater