Change the Law: A Simulation of the Reduction of Payment Period of Trade Debts on Italian Firms

Abstract

The late payment of trade debts is a bad practice diffused mainly in Mediterranean countries and triggered by large firms and above all by public authorities. In February 2011, the European Parliament and the Council of the European Union have adopted the directive 2011/7/EU on combating late payment in commercial transactions. The directive poses, generally, the limit of 60 calendar days for contractual payment period. In Italy, the average payment period is about twice this limit. The aim of this paper is to estimate the impact on Italian firms of the reduction of payment period to the European parameters. The simulation is based on more than 210,000 annual statements of Italian limited companies (year 2009). The expected effects involve both balance sheet and profit and loss account. The results show important micro and macro economical effects emerging from the application of the EU directive. The evidence regards the whole sample and becomes stronger for some particular groups of firms: size, sector, geographical area and rating class.