Trade Payables and Shareholder Wealth: Evidence from North Korean Shock on South Korean Companies

32 Pages Posted: 27 Jan 2017

See all articles by Hocheol Nam

Hocheol Nam

Hokusei Gakuen University

Konari Uchida

Kyushu University - Faculty of Economics

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

Nam, Hocheol and Uchida, Konari, Trade Payables and Shareholder Wealth: Evidence from North Korean Shock on South Korean Companies (January 26, 2017). Available at SSRN: https://ssrn.com/abstract=2906322 or http://dx.doi.org/10.2139/ssrn.2906322

Hocheol Nam

Hokusei Gakuen University ( email )

2-3-1, Oyachi nishi, Atsubetsu-ku
Sapporo, 004-8631
Japan

Konari Uchida (Contact Author)

Kyushu University - Faculty of Economics ( email )

744 Motooka
Nishiku
Fukuoka, Fukuoka 8190395
Japan

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