Extreme weather events and payment timeliness in supply chains: Evidence from Hurricane Katrina

Abstract

Payment timeliness is crucial for the efficient functioning of supply chains. This paper examines the impact of extreme weather events on the timeliness of business establishments' payments to their suppliers, with a particular focus on Hurricane Katrina. We find that Katrina caused significant payment delays among affected establishments, with the impact being more severe for establishments whose parent firms were more exposed to Katrina, were financially constrained, or operated in markets with higher supplier competition. Following Katrina, these payment delays were associated with deteriorations in establishments' employment, survival, and exit outcomes, as well as in parent firms' supply-chain relationships and suppliers' financial performance. Our findings demonstrate that physical climate risks can profoundly affect the financial and real outcomes of customer and supplier firms through payment delays.