The Check Is in the Mail: Can Disclosure Reduce Late Payments to Suppliers?

43 Pages Posted: 16 Mar 2021

See all articles by Elizabeth Chuk

Elizabeth Chuk

University of California, Irvine - Paul Merage School of Business

Ben Lourie

University of California, Irvine

Il Sun Yoo

University of California, Irvine

Date Written: January 18, 2021

Abstract

A common corporate cash management strategy is to delay payments owed to suppliers. We examine whether buyers pay suppliers faster in response to a recent regulatory change in the United Kingdom that mandates the public disclosure of buyers’ payment practices. We find that after the regulatory change, UK firms subject to this regulation shortened their payment periods relative to several control samples of firms that were not subject to the regulation. In cross-sectional tests, we predict and find that this shortening of the payment period is attenuated for firms that are less able to bear the costs of paying suppliers faster. Specifically, we find that the reduction in the payment period is smaller for buyers that (i) have longer operating cycles, (ii) depend more heavily on trade credit as a source of external financing, and (iii) pay dividends. In supplemental tests using proprietary data, we find that buyers subject to this regulation reduced their trade credit that is overdue by 30 days or more. However, this reduction is partially offset by an increase in the trade credit that is overdue by less than 30 days. Our findings are important in light of the ongoing debate in other regimes (e.g., the United States) on whether to require additional disclosures of trade credit.

Keywords: regulation, disclosure, supplier payment period, trade credit, customer–supplier relationships, supply chain

JEL Classification: G23, L14, M41, M48

Suggested Citation

Chuk, Elizabeth and Lourie, Ben and Yoo, Il Sun, The Check Is in the Mail: Can Disclosure Reduce Late Payments to Suppliers? (January 18, 2021). Available at SSRN: https://ssrn.com/abstract=3775656 or http://dx.doi.org/10.2139/ssrn.3775656

Elizabeth Chuk (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

University of California, Irvine
Irvine, CA California 92697-3125
United States

Ben Lourie

University of California, Irvine ( email )

Irvine, CA 92697-3125
United States

Il Sun Yoo

University of California, Irvine ( email )

Paul Merage School of Business
Irvine, CA 92697-3125
United States

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