Do Firms Overuse Supplier Financing? Evidence from Global Board Reforms

We conjecture that firms reduce accounts payable following internal governance-enhancing board reforms. We expect this effect to be amplified for firms with weak internal governance and those operating in countries with strong external governance and external financing mechanisms. We further expect this effect to be amplified among financially fragile firms facing heightened external financing needs, financial constraints, demand uncertainty, and market competition. Using a decade of data surrounding board reforms in 38 countries, our multinational difference-in-differences analyses strongly support these predictions. Improvements to internal governance reduce firms' reliance on supplier financing and manipulation of payables for signaling and opportunistic purposes, leading to improved firm investment and performance.