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

We examine whether buyers reduce their late payments in response to a regulatory change in the United Kingdom that mandates the public disclosure of their payment practices. We find that UK buyers subject to this regulation reduce their late payments. In cross-sectional tests, we find that this reduction in late payments is more pronounced for buyers with a greater extent of late payments, buyers facing a more concentrated supplier base, and buyer-supplier relationships in which a supplier is more important to a buyer than other suppliers. In additional tests, we document evidence consistent with increases in contracting costs for late payers after the disclosure of late payments. Specifically, we find that late-paying buyers experience (i) a loss of suppliers and (ii) a negative stock market reaction. Finally, for buyers subject to the regulation, we document a decrease in operating cash flows, increase in debt, decrease in investment, and decrease in future profitability. Our findings that the disclosure of late payments contains decision-useful information can inform standard-setters, as the FASB and IASB recently mandated new disclosures related to trade credit but omitted mandates for disclosures related to late payments.

This paper was accepted by Ranjani Krishnan, accounting.

Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2024.06586.