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Ill‐intentioned or well‐intentioned: earnings management and trade credit

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  • Xingxing Hu
  • Xiaobao Song
  • Wunhong Su

Abstract

The use of trade credit as important short‐term financing for firms is increasing. This study explores the differential impact of firm earnings management on trade credit financing under different motives, using A‐share listed firms in China from 2009 to 2020. The results show that accrued and real earnings management reduce a firm's trade credit. On the other hand, the classification shifting earnings management increases a firm's trade credit. Accrued and real earnings management are opportunistically motivated, while classification shifting earnings management is non‐opportunistically motivated. Moreover, external audits weaken the negative effect of accrued and real earnings management on trade credit and enhance the positive effect of classification shifting earnings management on trade credit, indicating the ‘bilateral matching effect’ between external audits and firms. Finally, financing constraints weaken the impact of earnings management on trade credit.

Suggested Citation

  • Xingxing Hu & Xiaobao Song & Wunhong Su, 2023. "Ill‐intentioned or well‐intentioned: earnings management and trade credit," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 37(1), pages 88-120, May.
    • Handle: RePEc:bla:apacel:v:37:y:2023:i:1:p:88-120
    DOI: 10.1111/apel.12382
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    References listed on IDEAS

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