Outsourcing Governance to the Supply Chain: Trade Credit as an Informal Control Mechanism for Cost Stickiness in Emerging Market SMEs

For decades, management accounting has assumed that effective cost control requires formal, internal governance systems. But what happens when those systems are weak or absent-as they often are for SMEs in emerging markets? This study challenges the internal-centric orthodoxy by reframing trade credit not as mere liquidity, but as an informal relational governance mechanism. Using panel data from 205 Iranian SMEs (2016-2024), we find that trade credit significantly reduces cost stickiness-particularly where internal agency costs are high. Suppliers act as quiet external monitors, pressing managers toward leaner operations when sales decline. We offer a significant contribution to accounting theory by demonstrating that governance can be effectively embedded in inter-firm relationships: governance can be successfully outsourced to the supply chain. For practitioners, this reframes supplier relationships as strategic governance partnerships rather than just procurement arrangements.