Customer Firms' Earnings Management Mechanisms and Their Suppliers' Trade Credit

• In Event: Earnings Management and Professional Judgment

Abstract

We investigate how customer firms use accrual and real activities earnings management to influence their suppliers' trade credit decisions. We find that customer firms' real activity earnings management is positively associated with the amount of supplier trade credit, while their accrual earnings management is negatively related. We also find that customers are less likely to manage R&D expenses for trade credit, supporting the importance of supply chain innovative investments in the supply chain. We further find that customer firms are more likely to adjust production and SGA related expenditures to obtain supplier trade credit. Overall, our findings suggest that customer firms use real earnings management strategically to influence suppliers' trade credit.

Authors

• JiangBo HuangFu HuangFu, Florida Atlantic University - Boca

• Maya A. Thevenot, Florida Atlantic University - Boca

• Hanbing Xing, Florida Atlantic University