"This paper examines trade credit policies of small firms operating in a bank-dominated environment (Finland). We find that creditworthiness and access to capital markets are important determinants of trade credit extended by sellers. The level of purchases is positively correlated with the level of accounts payable. Larger and older firms and firms with strong internal financing are less likely to use trade credit, whereas firms with a high ratio of current assets to total assets, and firms subject to loan restructurings use it more. Negative loan decisions by financial intermediaries increase and a close bank-borrower relationship decreases the probability that a firm does not take advantage of trade credit discounts". Copyright Blackwell Publishers Ltd, 2006.

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This study investigates whether managerial ownership related agency costs are associated with the demand for audit quality in a sample of small private firms. The literature on audit quality suggests that firms with high agency costs are more likely to demand audit quality. Our database enables us to compare the demand for audit quality with three different measures: demand for Big 4 auditors and two types of certified auditors with strict professional requirements. The results show that an increase in managerial ownership decreases the likelihood that the firm will engage a Big 4 auditor or a KHT certified auditor but it does not have an impact on the demand for lower level certified auditors. Our findings also support previous studies that suggest a nonlinear connection between managerial ownership and the demand for audit quality in terms of Big 4 audits. This suggests that higher quality audits by Big 4 audit firms are used to overcome agency costs induced by information asymmetries between shareholders and managers. An increase in leverage, on the other hand, increases the likelihood that the firm will engage a lower level certified auditor as opposed to a non-certified auditor. SUMMARYThe role of audit firm selection costs has been a much revisited topic in recent literature. It has been suggested in the literature that managers voluntarily increase the observability of their actions by hiring independent auditors to monitor their behavior.The purpose of this study is to investigate the association between managerial ownership and the demand for audit quality particularly in the context of private firms. These firms can be characterized as having severe information asymmetries between firm insiders and other stakeholders. Information asymmetry in particular is expected to increase the probability of agency conflicts between management and outside stakeholders, such as shareholders and creditors, as the possibility to utilize private information gives management incentives to act in self-interest instead of in the interests of other stakeholders.Our database enables us to investigate the choice between four different types of auditors: Big 4, KHT certified, HTM certified, and non-certified auditors. Finland has a two-tier system of auditor qualifications. The lower level qualified auditors are called HTM auditors (auditors and audit firms authorized by a local Chamber of Commerce) and higher level qualified auditors KHT auditors (auditors and audit firms authorized by the Central Chamber of Commerce). Also, during the sample period (2000)(2001)(2002)(2003)(2004)(2005)(2006) all Finnish firms were required to have a financial audit regardless of firm size.The main conclusion of this study is that managerial ownership has an important impact on the demand for audit quality in our sample of small private firms. We find evidence that the demand for audit quality increases as managerial ownership decreases. Specifically, we observe CEO's ownership to be inversely associated with the likelihood that private firms ...

Finnish firms are known to manage earnings downwards to avoid income taxes. This study suggests that they simultaneously manage earnings upwards in a smaller scale. The idea behind this behaviour is that humans may perceive a profit of, say, 301 million as abnormally larger than a profit of 298 million. Consequently, firms tend to adjust the second leftmost digit of earnings to exceed nine in order to make the first digit of earnings larger by one. Such corporate behaviour has been previously documented in New Zealand and in the USA. Our study finds a similar phenomenon in Finland. Our results show that although the largest second digits (eight and nine) are fewer than expected, only sixes and sevens are statistically significantly managed upwards.