Examining Voluntary Corporate Disclosures about Reverse Factoring

Abstract

Reverse factoring (RF) is a working capital arrangement through which a buyer involves a financial institution to buy invoices from suppliers on a discount and repays such loan at a later date. This leads to a reduction in days receivable for the supplier. However, this also leads to conversion of an operational liability into a financial liability and increases leverage for the parties. In this study, we examine the background of RF with focus on the voluntary disclosure made by the firms pertaining to their RF programmes. Presently no regulatory body requires disclosure of RF specifically in the annual reports and therefore disclosures are made selectively by the corporations. We choose to focus on one aspect, i.e. exposure to public scrutiny, and how that leads firms towards more RF disclosures. Secondly, we study the impact of voluntary disclosure made by a firm on its bid-ask spread in the market. Our results indicate that there is indeed a positive relationship between more public scrutiny and corporate disclosure regarding RF, however statistical significance of this relationship is low. On the other hand, we find that a negative relationship holds between voluntary disclosure pertaining to RF and bid-ask spreads.