Abstract
We examine the association between voluntary financial disclosure and the amount of obtained trade credit in a sample of small private Belgian companies. We argue that voluntary disclosure can help small private companies in mitigating information asymmetries that arise between the company and their suppliers. Using a propensity score matching procedure to control for selection bias, we find that voluntary financial disclosure by small and private companies is positively related to the level of trade credit. This is in line with the traditional view that asymmetric or incomplete information restricts access to external funds.
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Acknowledgements
We acknowledge the comments of the participants at the 38th EAA Annual Congress (2015) in Glasgow and the participants at the EUFIN workshop (2015) in Paris. We specifically want to thank Kris Hardies and Marie-Laure Vandenhaute for their comments on earlier drafts of this paper.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 In Belgium, medium-sized companies are not defined for accounting or financial reporting purposes (art. 15 Companies Code).
2 However, a limitation of this measure is that it does not provide information on who induced the decision to disclose the sales figure. Nevertheless, this measure still provides a valuable proxy for analysing the association between more detailed financial statement disclosure and the level of trade credit.
3 Because the Bel-first database does not contain reliable data on ownership structure, we are not able to discriminate between independent and affiliated companies. According to Ceustermans and Breesch (Citation2016), subsidiaries are less likely to disclose financial information voluntarily than fully independent companies.
4 Companies listed on a stock exchange are not allowed to prepare abbreviated financial statements and have to file full financial statements.
5 Only Belgian listed companies are required to use IFRS for their consolidated accounts.
6 The maximum distance is the distance that two units can be apart from each other (on their estimated propensity scores) and is defined in units of standard deviations of the logit of the estimated propensity score (Thoemmes, Citation2012).
7 Statistical Classification of Economic Activities in the European Community, Rev. 2 (2008).
8 The overall χ2 balance test was not significant, χ2 (9) = 7.072, p = .630. Also, the comparison of the standardized mean differences of covariates is close to 0 after matching, indicating that matching improved overall balance.
9 Statistical Classification of Economic Activities in the European Community, Rev. 2 (2008).
10 A micro-entity is a company which on its balance sheet does not exceed the limits of at least two of the three following criteria: balance sheet total: 350.000€; net turnover: 700.000€ and average number of employees during the financial year: 10.
11 The balance sheet information should be duly filed, in accordance with national law, with at least one designated competent authority and the information should be forwarded to the business register, so that a copy should be obtainable upon application.