Reprint of: Third-party auditor liability risk and trade credit policies

Anthony Kyiu, Bernard Tawiah, Kwabena Antwi Boasiako and Sylvester Adasi Manu

The British Accounting Review, 2025, vol. 57, issue 1

Abstract: We investigate the effect of Third-Party Auditor Liability (TPAL) risk on firms' trade credit policies. Exploiting the staggered state-level changes to TPAL in the US as a quasi-natural experiment, we find that firms in states with a higher risk of TPAL increase their use of trade credit. This relationship is more pronounced for firms with a more enhanced information environment, those with greater financial constraints, and those whose auditors are more exposed to litigation risk. Overall, our findings provide evidence of how TPAL affects firms’ short-term financing needs.

Keywords: Auditor liability; Short-term financing; Trade credits (search for similar items in EconPapers)
JEL-codes: G30 G32 M42 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:57:y:2025:i:1:s0890838925000125

DOI: 10.1016/j.bar.2025.101562

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