Voluntary Disclosure of Sales and the Extent of Trade Credit in Small Private Companies

We examine the association between voluntary financial disclosure and the amount of obtained trade credit in a sample of small private Belgian companies. We argue that voluntary disclosure can help small private companies in mitigating information asymmetries that arise between the company and their suppliers. We exploit a large and detailed database with information of more than 90,000 small private companies over the period 2010 till 2012. Our results indicate that voluntary financial disclosure by small and private companies is positively related to the level of trade credit, which is in line with the traditional view that asymmetric or incomplete information restricts access to external funds. In addition, our results show that the effect of disclosure on the level of trade credit is stronger for companies with a lower credit quality (proxied by profitability). Finally, we find that trade credit is negatively related to age, profitability, solvency, liquidity, the level of total bank loans and tangible fixed assets and positively related to growth, the level of inventories and accounts receivable.