Effects of Transparency on Customer-Supplier Contracting

Date
2019-08-31
Authors
Grewal, Jody
Perez-Cavazos, Gerardo
Mohan, Aditya
Journal Title
Journal ISSN
Volume Title
Publisher
Volume
Number/Issue
Starting Page
Ending Page
Alternative Title
Abstract
This paper examines the effects of disclosure on customer-supplier payment practices. Exploiting the introduction of the Payment Practices Disclosure Regulation (PPDR) in the United Kingdom, we find that large firms that are required to disclose their payment practices reduce accounts payable as a fraction of assets by 2.1% and that small, non-disclosing firms experience a reduction of 11.3% in accounts receivable scaled by revenue. Cross-sectional tests suggest that the threat of consumer pressure and barriers to entry are important drivers of the change in payment terms, with effects concentrated among firms that sell to final consumers and those with high barriers to entry. We also show that the effects occur over time, with large firms reducing the fraction of invoices not paid within the agreed terms by 1.5% every six months. Our findings indicate that disclosure regulation is an effective tool for changing payment practices.
Description
Keywords
customer-supplier contracts, payment practices, disclosure regulation
Citation
Extent
Format
Geographic Location
Time Period
Related To
Rights
Rights Holder
Email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.