"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 ...

The slippery slope framework of tax compliance emphasizes the importance of trust in authorities as a substantial determinant of tax compliance alongside traditional enforcement tools like audits and fines. Using data from an experimental scenario study in 44 nations from five continents (N = 14,509), we find that trust in authorities and power of authorities, as defined in the slippery slope framework, increase tax compliance intentions and mitigate intended tax evasion across societies that differ in economic, sociodemographic, political, and cultural backgrounds. We also show that trust and power foster compliance through different channels:trusted authorities (those perceived as benevolent and enhancing the common good) register the highest voluntary compliance, while powerful authorities (those perceived as effectively controlling evasion) register the highest enforced compliance. In contrast to some previous studies, the results suggest that trust and power are not fully complementary, as indicated by a negative interaction effect. Despite some between-country variations, trust and power are identified as important determinants of tax compliance across all nations. These findings have clear implications for authorities across the globe that need to choose best practices for tax collection.

This study examines the determinants of the decision to raise currency debt. The results suggest that hedging figures importantly in the currency-of-denomination decision: firms in which exports constitute a significant fraction of net sales are more likely to raise currency debt. However, firms also tend to borrow in periods when the nominal interest rate for the loan currency, relative to other currencies, is lower than usual. This is consistent with the currency debt issue decision being affected by speculative motives. Large firms, with a wider access to the international capital markets, are more likely to borrow in foreign currencies than small firms.

Purpose The purpose of this paper is to investigate whether the relationship between capital structure and firm performance in small- and medium-sized enterprises (SMEs) is moderated by credit risk. Design/methodology/approach The authors empirically test whether an SME’s credit risk affects the SME’s relationship between capital structure and firm performance by using a 2012 cross-sectional sample of European SMEs from Austria, Belgium, Finland, France, Germany, Italy, Portugal, Spain, Sweden and the UK. Findings The empirical results suggest that in low credit risk SMEs, the debt ratio is negatively related to firm performance; however, this relationship is not present in high credit risk SMEs. Therefore, it is indicated that SME credit risk moderates the relationship between capital structure and firm performance. Practical implications The findings of the paper will enable financial managers to understand the importance of SMEs’ credit risk and will assist them in maximizing firms’ performance. Originality/value This paper extends the findings of previous studies by examining whether credit risk affects the relationship between capital structure and firm performance.

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