Abstract
The purpose of this study was to investigate the association between the financial statement format (abbreviated or micro) and the level of trade credit. To test this relationship, we used a sample of 76,490 company-year observations of small companies in Belgium over the period of 2017–2019. We found that micro-entity accounts are negatively associated with the level of trade credit. Hence, our results provide evidence that more detailed financial statements are associated with higher levels of trade credit. In addition, we show that suppliers increase their reliance on the financial statement format when companies have lower inventory levels. Our results provide additional insights into the value of financial statements of small companies in the context of trade credit decisions. This study is set within the wider context of the simplification measures taken by the European Union (EU) to reduce the administrative burdens for small companies. The recent policy measures have further extended the debate on financial reporting regulation for small companies. A primary topic in this context is the discussion of the value of publicly available financial information in a small company context.
Highlights
The purpose of this study was to investigate the association between the financial statement format and the level of trade credit
(2013/34/European Union (EU)) that permits Member States of the EU to exempt ‘micro-entities’ (microentities are companies that do not exceed the thresholds of at least two of the following three criteria at the balance sheet date: (i) a balance sheet total of EUR 350,000, (ii) a net turnover of EUR 700,000, and (iii) an average workforce during the financial year of 10 employees) from the general financial statement publication requirement
We investigated the relationship between the financial statement format and the availability of trade credit on a broad sample of Belgian micro-entities
Summary
The purpose of this study was to investigate the association between the financial statement format (abbreviated or micro) and the level of trade credit. To test this relationship, we used a sample of 76,490 company-year observations of small companies in Belgium over the period of 2017–2019. This study is set within the wider context of the simplification measures taken by the European Union (EU) to reduce the administrative burdens for small companies. This study is set within the wider context of the Europe 2020 Strategy for smart, sustainable, and inclusive growth, which aims to reduce administrative burdens and improve the business environment, for small companies. Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations
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