Examining the effects of the quality of financial reports on SME trade credit: An innovative approach

Following an innovative approach, the effects of financial report quality on the use of trade credit in small and medium‐sized enterprises (SMEs) are examined. This effect is considered in a direct and indirect way. Firstly, we analyze whether SMEs with low‐quality information are more likely to use trade credit as a financial resource. Secondly, we investigate whether the relationship between trade credit and bank credit in SMEs is moderated by the quality of financial reports. For the empirical analysis, we use a sample of Spanish SMEs over the period 2004 to 2011, and apply a panel data model with fixed effects. The findings suggest that firms with low‐quality financial reporting use more trade credit. Furthermore, the influence of bank credit on trade credit is found to be partially moderated by audit opinion.