The Moderating Effect of Economic Policy Uncertainty on the Relationship between Financial Restatements and Trade Credit: An Applied Study

This research aims to investigate the impact of both financial restatements (REST) and economic policy uncertainty (EPU) on trade credit (TC). Additionally, it explores whether EPU has a moderating effect on the relationship between REST and TC. To reach these objectives, an applied study has been conducted on a sample of 107 Egyptian listed companies from 2013 to 2022.
The results of the statistical analysis concluded the following: First, there is an inverse effect of REST on TC, which means that restatement companies face difficulties in obtaining TC from suppliers as a short-term source of finance because of the increase in information asymmetry. Second, there is an inverse effect of EPU on TC, which means that the company's ability to access TC decreases during periods of EPU because of the increase in credit risk. Third, EPU moderates the inverse relationship between REST and TC, which means that restatements during the periods of EPU reduce the company's ability to access TC.
Furthermore, additional tests using another measure of EPU indicated an inverse effect of EPU on TC, which confirms the validity of the main test's results. Additional tests also indicated an inverse effect of REST and EPU on bank loans. Accordingly, the general results of the study indicated that REST and EPU have a negative effect on credit-based financing sources (TC and bank loans).