Does Risk Disclosure Matter for Trade Credit?

Issal Haj-Salem,Khaled Hussainey

doi:10.3390/jrfm14030133

Abstract

In this paper, we examine the impact of risk disclosure practices on trade credit. We hypothesize that risk information could reduce information opacity that arises between companies and their suppliers. We collected annual reports for Tunisian listed companies for the period 2008–2013. This gives us 146 firm-year observations. We find that risk disclosure has a positive impact on the level of trade credit. Our paper offers a new empirical evidence on the role of risk disclosure in reducing information asymmetry and increase companies’ access to short-term external funds. Our study provides managerial implications for firms, suppliers, and regulatory authorities.

Highlights

Access to finance is a challenge for companies worldwide to preserve and enhance their growth
We find that risk disclosure determines the trade credit provided by suppliers to their customers
Since empirical research linking risk disclosure with trade credit has not been yet undertaken despite the importance to understand this association, our study aims to fill this void in the literature and we expect that risk disclosure practices influence creditors’

Summary

Introduction

Access to finance is a challenge for companies worldwide to preserve and enhance their growth. This was considered a major problem for emerging companies (Brown et al 2011) and for African ones (Fowowe 2017). Researchers believe that using trade credit may help firms to access bank loans since it is considered a good signal (Andrieu et al 2017). Firms are likely to use trade credit rather than bank credit during a tight money period (Xu et al 2020). In this context, in Tunisia, the Arab spring undoubtedly mitigates bank credit availability for Tunisian firms. Many reforms took place to improve the financial soundness indicators and financial stability

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