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M&A Activity, Financial Distress, and Trade Credit: Evidence from Turkey
Abstract
This paper investigates the effects of firm constraints on the likelihood of M&A involvement and explores if mergers mitigate financing constraints. The results display that young and small firms facing financial constraints, corporations that have low R&D expenditures and capital investments have higher likelihood of M&A activity. Firms that compete in technology-driven industries are more likely to merge. Equity- constrained firms have high likelihood of M&A involvement while cash insolvency and leverage are not significantly related with mergers. The results support the positive relation between the use of trade credit and financial distress displayed in previous studies, but reveal that distressed firms involved in mergers reduce trade credit significantly. Results indicate that mergers mitigate the positive relation between distress and trade credit. Distressed firms involved in mergers avoid payables which rank lower in pecking order finance. M&As seem to alleviate financing constraints for cash-constrained corporations in an emerging market.
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