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Hedge fund activism and trade credit

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  • Singh, Amanjot

Abstract

This study shows that trade creditors extend a negative response to hedge fund activism. Relative to control firms, target firms' accounts payable decrease by 28%, post activist intervention by hedge funds. This reduction is due to supply-side factors, highlighting suppliers' expropriation concerns. The study provides novel evidence that the repercussions of hedge fund activism extend beyond the formal debtholders, and informal debtholders such as trade creditors are not an exception. Further, target firms also offer lower trade credit to their customers after hedge fund activism. Trade receivables decrease by 12% relative to control firms. Activism-induced changes in cash flows potentially account for this reduction in trade receivables.

Suggested Citation

  • Singh, Amanjot, 2022. "Hedge fund activism and trade credit," Global Finance Journal, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:glofin:v:53:y:2022:i:c:s1044028322000254
    DOI: 10.1016/j.gfj.2022.100723
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