Abbreviated or Micro-Entity Accounts? Effect of Financial Reporting Format on the Availability of Trade Credit

The purpose of this study was to investigate the association between the financial statement format (abbreviated or micro) and the level of trade credit. To test this relationship, we used a sample of 76,490 company-year observations of small companies in Belgium over the period of 2017-2019. We found that micro-entity accounts are negatively associated with the level of trade credit. Hence, our results provide evidence that more detailed financial statements are associated with higher levels of trade credit. In addition, we show that suppliers increase their reliance on the financial statement format when companies have lower inventory levels. Our results provide additional insights into the value of financial statements of small companies in the context of trade credit decisions. This study is set within the wider context of the simplification measures taken by the European Union (EU) to reduce the administrative burdens for small companies. The recent policy measures have further extended the debate on financial reporting regulation for small companies. A primary topic in this context is the discussion of the value of publicly available financial information in a small company context.