Mandated Public Disclosure and Trade Credit Payment Practices

ABSTRACT We investigate the efficacy of mandated public disclosure to improve firms’ trade credit payment practices. We exploit a regulation adopted by the United Kingdom in 2017 that mandates firms meeting certain size criteria to disclose information about their payment practices toward their trade suppliers. Using a difference‐in‐differences research design combined with a regression discontinuity approach for a sample of firms just above and below the mandatory disclosure size criteria, we find that firms disclosing supplier payment information reduce the number of days they take to pay their trade credit. Further, this effect is concentrated in firms with higher liquidity and lower leverage. After performing robustness tests, we explore two potential channels that could explain our findings. First, we consider whether firms are responding to pressure from suppliers in competitive industries. Second, we investigate whether firms are managing their external reputations. Using the Herfindahl–Hirschman Index to measure industry competitiveness, and firms that sell to end consumers and their market share to measure reputational exposure, we find evidence consistent with both explanations. Collectively, these findings suggest that disclosure motivates firms to improve their payment practices; however, this effect appears to be limited to firms with the financial flexibility to respond.