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    Third-party auditor liability risk and trade credit policies

    Kyiu, Anthony ORCID logoORCID: https://orcid.org/0000-0003-0410-8193, Tawiah, Bernard, Boasiako, Kwabena ORCID logoORCID: https://orcid.org/0000-0002-9078-9396 and Adasi Manu, Sylvester ORCID logoORCID: https://orcid.org/0000-0001-9318-9620 (2024) Third-party auditor liability risk and trade credit policies. The British Accounting Review, 56 (6, A). 101454. ISSN 0890-8389

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    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.

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