The Effect of Payment Delays on Stock Prices

Ramon P. DeGennaro

University of Tennessee, Knoxville - Department of Finance

In this paper stock returns are modeled as a function of payment delays. Three hypotheses are tested: (1) that buyers compensate sellers for a six-business-day payment delay; (2) that the rate of compensation is the riskless rate; and (3) that this delay is solely responsible for day-of-the-week effects. Results support the first and second hypotheses, but not the third. The coefficient on the variable that controls for payment delays is correctly signed and statistically significant. It is the correct size in all periods but one. However, the estimated rate of compensation probably differs across days of the week. Finally, controlling for a six-business-day payment delay fails to eliminate the weekly pricing pattern.

Keywords: day of the week effect, payment delay, weekly pattern, anomaly

JEL Classification: G1, G2

working papers series

Not Available For Download

Date posted: April 8, 2003  

Suggested Citation

DeGennaro, Ramon P., The Effect of Payment Delays on Stock Prices. Available at SSRN: http://ssrn.com/abstract=375360

Contact Information

Ramon P. DeGennaro (Contact Author)
University of Tennessee, Knoxville - Department of Finance ( email )
423 Stokely Management Center
Knoxville, TN 37996
United States
865-974-1726 (Phone)
865-974-1716 (Fax)
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