Institutional Environment, Accounting Transparency And Trade Credit

Accounting is an information system. Accounting information is the main source that external stakeholders learn about listed-company’s operating activity and financial situations. As for the extant literatures, they mainly focus on accounting information can reduce the information asymmetry between stakeholders in the capital market, such as shareholders or bank. However, there’re few literatures which research if accounting information can reduce the information asymmetry between suppliers and enterprise. Increasing accounting transparency can signal suppliers to show them that the company’s performance is good, reducing the opportunistic behavior between them, bringing down agency cost. As a result, it will benefit the trust relationship between the suppliers and company, and then promote the trade credit.The quality of accounting information cannot insulate from the specialized institutional environment. As for China whose economic is in transition, different areas’ economic development is disproportional. There is a public belief that the accounting information quality is bad and the transparency is low in China. So it is deserved to research if the accounting information transparency is better in areas which are better.It will increase the cost of breaking up the contract if the buyer and seller are in good institutional environment so that it will help them form a stable psychological expectation, which will promote the development of trade credit. On the contrary, entities are not like that in bad environment. It’s an interesting question that it’s beneficial to firm that it will get more trade credit and the agency cost is low if the company increases transparency.Besides, it is well known that financing constraints is stronger for non-state-owned enterprise in China. Compared with state-owned enterprises, in the same situations whether improving accounting transparency can promote non-state-owned enterprises get more trade credit and get more credit with lower costs or not is a question deserved to research. This paper chooses the A-shares listed company in ShenZhen stock market from2007-2011as samples, using the accounting information transparency evaluation indicator disclosed in the ShenZhen stock exchange to measure accounting transparency. The indicator (accounts payable and notes payable subtract prepayment, then divides the whole assets) is used to measure the trade credit. And prepayments divide the sum of accounts payable, notes payable, prepayments measures the trade costs. So we can research if the transparency has effects on trade credit company can get and the trade costs.This result shows the accounting transparency is positively relative to trade credit. In other words, the higher the transparency, more trade credit the company can get. The company’s transparency is negatively relative to trade costs what shows that the higher the transparency, the lower the trade costs. After adding cross term that the accounting information transparency multiple domestic institutional environment, we concludes that compared with the better environment, the higher the transparency is beneficial to the company that it can get more trade credit in the worse environment. At the same time, as for the areas whose institutional environment is not so good, the higher the transparency, the trade credit the company can get is with lower trade costs.So we concludes that improve company’s transparency can reduce information asymmetry which is good to the trust relationship between the suppliers and company. Both the relationship is established and to be hold on. Then it can help company get more credit with lower costs. Enhancing accounting transparency will promote the development of trade credit for the companies in worse environment. For the first time, the paper researches the effects of accounting information transparency.In addition, this paper also finds that improving accounting transparency has more effects on trade credit of non-state-owned companies, compared with state-owned companies. Specially, if non-state-owned companies increase accounting transparency, it will get more credit, and get trade credit with lower costs. The paper extends the analysis angle of economic consequences of accounting information transparency. For the first time, we study the consequence of accounting information transparency from the perspective that if it can reduce information asymmetry between suppliers and companies.