Trade Payables and Shareholder Wealth: Evidence from North Korean Shock on South Korean Companies
32 Pages Posted: 27 Jan 2017
Date Written: January 26, 2017
Abstract
We find that the portfolio of Korean firms with small accounts payable and large accounts receivable experiences negative excess returns when investors learn that North Korea sank a South Korean warship in May 2010. The negative effect of small accounts payable (large accounts receivable) is especially evident for small and highly leveraged companies as well as for non-subsidiaries (parent companies). The results suggest that trade credits provide financially constrained and unhealthy firms with insurance against negative shocks. To the best of our knowledge, this is the first research to provide evidence that trade payables have favorable effects on shareholder value.
Keywords: Trade credits, Shareholder wealth, Event study, Korea
JEL Classification: G14, G32
Suggested Citation: Suggested Citation