Mandated Public Disclosure and Trade Credit Payment Practices

• In Event: 5.03. CSR/ESG Disclosure

Abstract

We investigate the efficacy of mandated public disclosure to improve firms’ trade credit payment practices. We exploit payment practice regulation adopted by the United Kingdom in 2017 that mandates firms of certain size criteria disclose information about their payment practices towards their trade suppliers. Using a difference-in-differences research design and a sample of firms just above and below the mandatory disclosure size criteria, we find that firms that disclose supplier payment information reduce the number of days they take to pay their trade credit. In cross-sectional analyses, we find this effect is concentrated in firms with higher liquidity and lower leverage. Collectively, these findings are consistent with disclosure inducing reputational concerns and motivating improved payment practices; however, these effects appear to be limited to firms with the financial flexibility to respond.

Authors

• Mirna Boghossian, University of Delaware

• Robert Ronald Carnes, University of Florida