The Empirical Research On The Effects Of Internal Control Quality On Trade Credit Financing

Compared with other channels of financing, the trade credit financing has so many unique advantages. In the developed western capital market, the scale of the trade credit financing is huge and it’s widely used among traders. Similarly, in china, the relative and absolute scale of the trade credit financing are considerable. And there is a growing tendency that enterprises financing through this way. Domestic and overseas scholars have been had a hot focus on the trade credit. The research on the trade credit financing focuses on the motivation and factors of trade credit financing, and the relationship between trade credit financing and bank credit, and fabulous achievements have been made until now. Financing Motivational Theory of trade credit include financing comparative advantage theory, transaction cost theory, price discrimination theory and credit rationing theory. Trade credit is affected by many factors, such as company size, monetary policy and internal controls. Compared to other factors, study on the relationship between the quality of internal control and trade credit financing is still relatively small. In the background that trade credit financing develops rapidly and internal control has attracted increasing attention, some discussions on trade credit financing from the perspective of internal control quality is of great theoretical and practical significance.In view of this, this paper explored whether internal control quality affects and how to affect trade credit financing scale and mode, which is between companies and stakeholders such as suppliers and customers.This paper reviewed relevant literature from three aspects, including internal control quality, trade credit financing and the effects of internal control quality on trade credit. Then we stated theories of internal control quality affecting trade credit and put forward the research hypothesis. Based on reviewing relevant literature and analyzing theories, this paper selected the 2010-2012 China’s A share listed companies in the manufacturing sector as a research object, and selected eligible sample companies under the respective conditions. In this paper, scale of trade credit financing was measured by the sum of accounts payable, notes payable, accounts receivable in advance divided by total assets, the transaction costs of trade credit financing model was measured by notes payable divided by the sum of accounts payable, notes payable, advances from customers, and selected Dibo · Chinese listed companies internal controlled index as a proxy for the internal control quality. In the subsequent data processing, this paper tested hypothesis using statistical analysis methods such as descriptive statistical analysis, correlation analysis and multiple linear regression analysis. And in order to make the results more reliable, we also made the robustness test. The main conclusions are as follows:Firstly, internal control quality has a significantly positive effect on the trade credit financing scale. The better the quality of the company’s internal controls, the easier access to more trade credit financing.Secondly, the quality of internal control has a significant influence on the choice of trade credit financing model. The better the quality of the company’s internal controls, the easier to obtain lower-cost trade credit financing model.At last, combined with the empirical results of this study, this paper offered recommendations from the perspective of improving the internal control system and strengthening internal control regulation, summarized the limitations during the research and proposed the direction of future research.