How trade credit affects mergers and acquisitions

Abstract

This paper examines the relationship between trade credit and mergers and acquisitions for the US listed firms from 1980 to 2014. We find that firms with higher trade credit are more likely to be acquirers and acquirers with higher trade credit are more likely to use cash offers rather than stock offers to the target. In addition, target premium is lower for acquirers with higher trade credit, for whom the abnormal returns after mergers and acquisitions are higher. Our results provide the complete evidence on how trade credit affects managerial decision to merge or acquire target firms, payment method, acquisition premium and post-performance in mergers and acquisitions context.