Working Capital Transparency - Capital Market Reactions to Supply Chain Finance Disclosures
Abstract
Supply Chain Finance refers to financing arrangements that optimize working capital along the supply chain and have seen rapid adoption among large buyers and their suppliers. This study examines capital market reactions to the disclosure of Supply Chain Finance, following recent regulatory changes mandating the disclosure of these agreements. Using a sample of US publicly traded firms, the results indicate a positive association between Supply Chain Finance disclosures and abnormal stock returns and abnormal trading volumes, suggesting that investors value transparency of working capital disclosures. Additional analyses reveal that companies utilizing Supply Chain Finance agreements exhibit enhanced financial performance, as indicated by their increased operating margins and sales growth. The results suggest that Supply Chain Finance utilization increases supply chain efficiency and supports strategic investment decisions. The findings contribute to the literature on working capital management and trade credit, urging future research to incorporate Supply Chain Finance usage when evaluating payment terms and financing strategies.