Management Accounting Section Midyear Meeting

Financial Restatements and the Demand for Trade Credit

• In Event: Break/Research Exhibition 3: Interfirm Issues and Governance

Abstract

This study provides evidence on the relation between financial restatements and restatement firms’ demand for trade credit as a source of financing. Using a sample of U.S.-listed firms for the 2000–2016 period, we find that restatement firms tend to use more trade credit in the year following the restatement disclosure year than do non-restatement firms. Moreover, we find evidence that restatement firms use trade credit to substitute for the reduced reliance on short- and long-term loans. Taken together, our findings suggest that restatement firms experiencing difficulties in obtaining conventional borrowings tend to resort to trade credit as an alternative source of financing.

Authors

• Hongkang Xu, The University of Massachusetts Dartmouth

• Duong Nguyen, university of massachusetts-dartmouth

• Mai Dao, University of Toledo