Lower trade credit payment delays as a result of exclusion from tax deductible expenses

Bernal Arkadiusz () and Białek-Jaworska Anna
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Bernal Arkadiusz: Department of Corporate Finance, Poznań University of Economics and Business, Poznan, Poland
Białek-Jaworska Anna: Department of Innovation and Development, Faculty of Economic Sciences, University of Warsaw, Warsaw, Poland

International Journal of Management and Economics, 2025, vol. 61, issue 5, 42-55

Abstract: This article tests whether excluding late and long payments from deductible expenses shortens days payable outstanding (DPO). We exploit a natural experiment of increasing the income tax base resulting from liabilities overdue for more than 30 days and those with payments longer than 90 days in force in Poland in 2013–2015. We apply a difference-in-differences approach to a panel of 56,364 Polish firms from 2010 to 2019. Our results show that this corporate income tax regulation improves payment discipline because from 2013 to 2015, firms cut the DPO, which acknowledges that the examined instrument is an effective tool for reducing payment congestion. Furthermore, higher effective tax rates in 2013–2015 for firms with overdue liabilities confirm that the unreliable contractors applied the analysed provisions. Therefore, excluding late payments from deductible costs is a good way to reduce intentionally delayed payments and can be seen as a method to reduce the problem of late and long payments, which is a serious problem worldwide.

Keywords: Trade credit; Late payments; Public policy; Income tax; Moral hazard (search for similar items in EconPapers)
JEL-codes: G32 G38 H25 H32 M41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ijomae:v:61:y:2025:i:5:p:40-53:n:1002

DOI: 10.2478/ijme-2025-0020

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