The Effect of Inventory Liquidation Costs on the Relationship between Accounting Quality and Trade Credit

Firms with low accounting quality have high demand for trade credit because they haven’t easier access to other sources of financing. On the other hands, suppliers rely on customers’ financial information and accounting quality to measure their creditworthiness when deciding on trade credit. However, when customer inventory liquidation costs are little, suppliers pay less attention to customer accounting information and its quality. Consequently, this study aims to examine the relationship between accounting quality and trade credit, and investigates if inventory liquidation costs has impact on this relationship. In this study the statistical sample include 111 firms listed at TSE between the years 2012 to 2019. Accrual quality is used as a proxy to determine accounting quality. To achieve the research objectives, two hypotheses have been proposed and to test the hypotheses multiple linear regression analysis in a panel data mode were conducted. The results of the analysis of regression models show that accounting quality has a positive and significant effect on trade credit. In addition, inventory liquidation costs don’t moderate the relationship between accounting quality and trade credit. The main findings of this study indicate that accounting negatively related to the use of trade credit. In other words, companies’ demand for trade financing decreases with accounting quality. Also, the effect of accounting quality on trade credit is not affected by customers’ inventory liquidation costs.