Do Internal Control and Market Power Impact the Trade Credit Financing? Evidence from China

Abstract

Based on the perspective of trust, this paper investigates whether internal control, market power can influence the firm’s trade credit financing, and the interaction in this process. The study finds, firms with higher quality of internal control can gain the more trust of suppliers and obtain larger amounts of trade credit financing; firms with low market power have low level of trade credit financing. The high trust which is brought about by the high quality of internal control significantly weaken the negative influence that low market power exerts on the trade credit financing, that is, for the firms with low market power, the high quality of internal control will significantly enhance their ability of trade credit financing. Our research shows that, internal control with high quality can mitigate the difficulty of financing in the small and medium-sized enterprises.

Keywords: trust, quality of internal control, market power, trade credit financing