The impact of anti-financial crime activities on corporate debt financing choices: trade credit vs. long-term debt

Purpose - This study investigates the relationship between anti-financial crime activities and trade credit (TC) financing, exploring whether such activities reduce reliance on the costly TC financing and enhance access to less expensive long-term debt (LTD). This research aims to address the debate on the role of nonfinancial information, such as anti-financial crime practices, in impacting creditors’ decisions. Design/methodology/approach - Using data from public companies obtained through the S&P Capital IQ database, this study covers the period from 2019 to 2021. Multivariate regression analyses are used to assess the impact of four key anti-financial crime activities – corruption reporting, addressing bribery cases, whistleblowing policies and codes of conduct – on TC financing and LTD. Findings - The descriptive statistics highlight that most firms inadequately address financial crime, except for whistleblowing policies, which are mandated under the Sarbanes-Oxley Act. The results demonstrate a negative and significant relationship between anti-financial crime activities and TC financing, indicating that firms engaging in these activities rely less on costly TC. In addition, our results reveal a positive association between anti-financial crime activities and LTD, suggesting that increased transparency and reduced financial risk enable firms to access less expensive conventional funding. Originality/value - This paper contributes to the literature by establishing the role of anti-financial crime activities in shaping firms’ financing choices, providing empirical evidence of their impact on creditors’ decision-making. It reveals the importance of transparency and governance in reducing financing costs and improving access to conventional funding, offering valuable insights for regulators, creditors and investors.