Impact of performance commitment in mergers and acquisitions on trade credit policy: evidence from China

Figures & data

Table 1. Variable definitions.

Variable	Definition	Measurement
AR	trade credit	(Net notes receivable + net accounts receivable + net prepayments)/total assets
LRL	operating profit rate	operating profit/operating revenue
VAM	performance commitment	value of the year during the performance commitment period is 1, otherwise 0
VAM_time	duration of performance commitment	natural logarithm of the number of days a performance commitment lasts
SOE	ownership type	State-owned enterprises take the value 1, otherwise 0
lev	leverage ratio	total liabilities/total assets
lnsize	firm size	natural logarithm of total assets
ROA	return on assets	EBIT/average assets
cash_inv	cash reinvestment ratio	net cash flows from operating activities/(net fixed assets + net held-to-maturity investments + net long-term debt investments + net long-term equity investments + total current assets – total current liabilities)
growth	growth rate	growth rate of operating revenue
bank	bank loans	(short-term loans + long-term loans)/total assets
age	firm age	natural logarithm of days since firm established
MP	market share	firm i‘s annual sales as a percentage of the industry’s total sales
sale	sales expense ratio	sales expenses/operating revenue
direct	independent director ratio	ratio of the number of independent directors to the total number of directors
hfd5	ownership concentration	sum of the squares of the shareholding ratios of the top five shareholders
year	year	year dummy variables
ind	industry	industry dummy variables

Note: This table provides variable definitions and measurements.

Table 2. Descriptive statistics.

Variables	N	Mean	SD	Min	Median	Max
AR	12515	0.19	0.12	0.00	0.17	0.55
LRL	12500	0.06	0.23	−1.28	0.08	0.51
VAM	12515	0.34	0.48	0.00	0.00	1.00
SOE	11749	0.31	0.46	0.00	0.00	1.00
lnsize	12515	8.02	1.16	5.40	7.92	11.06
cash_inv	12515	0.10	0.26	−0.95	0.09	1.28
lev	12515	0.42	0.21	0.05	0.41	0.97
bank	12515	0.14	0.13	0.00	0.10	0.54
ROA	11755	0.05	0.08	−0.31	0.05	0.27
MP	12515	0.02	0.05	0.00	0.00	0.31
age	12515	8.63	0.42	7.17	8.70	9.36
growth	11740	0.26	0.75	−0.62	0.12	5.83
sale	12500	0.07	0.08	0.00	0.04	0.44

Note: This table presents the descriptive statistics for the main variables used in this paper. The dependent variable is trade credit (AR), and the main independent variable is performance commitment in mergers and acquisitions (VAM). All other variables are reported in Table 1.

Table 3. Correlation matrix.

	AR	VAM	SOE	lnsize	cash_inv	lev	bank	ROA	MP	age	growth	sale	LRL
AR	1	0.08***	−0.14***	−0.09***	−0.19***	−0.01	−0.06***	0.03***	−0.07***	−0.15***	0.12***	0.05***	−0.11***
VAM	0.08***	1	−0.16***	0.21***	0.04***	−0.05***	−0.03***	0.10***	−0.01	0.14***	0.23***	0.06***	0.14***
SOE	−0.12***	−0.16***	1	0.26***	0.02**	0.31***	0.18***	−0.12***	0.22***	0.15***	−0.10***	−0.21***	−0.15***
lnsize	−0.07***	0.19***	0.28***	1	0.13***	0.40***	0.31***	0.05***	0.50***	0.28***	0.07***	−0.22***	0.05***
cash_inv	−0.15***	0.03***	0.02**	0.10***	1	0.05***	−0.01	0.26***	0.19***	0.07***	0.03***	0.00	0.14***
lev	0.02**	−0.06***	0.31***	0.37***	0.03***	1	0.69***	−0.20***	0.25***	0.18***	−0.04***	−0.30***	−0.40***
bank	−0.09***	−0.08***	0.20***	0.26***	−0.02**	0.68***	1	−0.18***	0.22***	0.07***	−0.03***	−0.26***	−0.32***
ROA	0.00	0.06***	−0.06***	0.08***	0.14***	−0.21***	−0.17***	1	0.16***	−0.06***	0.38***	0.03***	0.75***
MP	−0.06***	−0.01	0.08***	0.24***	0.11***	0.09***	0.07***	0.10***	1	0.04***	0.09***	−0.14***	−0.03***
age	−0.12***	0.16***	0.16***	0.26***	0.05***	0.19***	0.07***	−0.06***	−0.00	1	−0.10***	−0.08***	−0.02**
growth	0.03***	0.19***	−0.03***	0.07***	0.02**	0.04***	−0.01	0.24***	0.05***	0.02	1	−0.02**	0.29***
sale	−0.04***	0.03***	−0.14***	−0.16***	0.03***	−0.23***	−0.21***	−0.00	−0.04***	−0.02**	−0.03***	1	0.10***
LRL	−0.04***	0.08***	−0.04***	0.12***	0.09***	−0.30***	−0.20***	0.74***	0.05***	−0.05***	0.15***	−0.03***	1

Note: This table presents the Pearson and Spearman correlation coefficients of the main variables in the lower left and upper right corners, respectively. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 4. Determinants of trade credit policy.

	(1)	(2)	(3)
Variable	AR	AR	AR
VAM	0.006**	0.008**	0.012***
	(2.18)	(2.39)	(3.53)
VAM*LRL			−0.059***
			(−4.20)
LRL			0.013
			(0.93)
SOE		−0.006	−0.006
		(−0.98)	(−0.92)
lnsize		−0.010***	−0.011***
		(−3.34)	(−3.42)
cash_inv		−0.069***	−0.069***
		(−9.79)	(−9.84)
lev		0.183***	0.184***
		(8.83)	(8.87)
bank		−0.173***	−0.172***
		(−6.08)	(−6.08)
ROA		0.113***	0.135***
		(4.51)	(3.31)
MP		0.030	0.026
		(0.46)	(0.40)
age		−0.043***	−0.043***
		(−5.64)	(−5.62)
growth		0.002	0.002
		(1.31)	(1.32)
sale		−0.115***	−0.114***
		(−3.48)	(−3.44)
constant	0.055***	0.462***	0.461***
	(4.96)	(6.93)	(6.92)
Year FE	Y	Y	Y
Industry FE	Y	Y	Y
R^2	0.128	0.210	0.212
Adj. R^2	0.126	0.207	0.209
N	12515	10965	10965

Note: This table presents the estimates for H1 and H2. The estimated results for H1 are shown in columns (1) and (2). The dependent variable is trade credit (AR), and the independent variable is performance commitment in mergers and acquisitions (VAM). The estimated result for H2 is shown in column (3). The dependent variable is trade credit (AR). The key independent variable is the interaction between operating profit rate (LRL) and performance commitment (VAM). T-values are presented in parentheses. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 5. Cross-sectional analyses.

	(1)	(2)	(3)	(4)	(5)	(6)
Variable	AR	AR	AR	AR	AR	AR
VAM	0.011***	0.000	0.003	0.066***	0.005	0.009***
	(3.10)	(0.01)	(0.89)	(4.32)	(1.23)	(2.74)
VAM*MK	−0.017**
	(−2.39)
MK	−0.006
	(−0.99)
VAM*HHI		0.011*
		(1.78)
HHI		0.025***
		(4.27)
VAM*risk			0.013***
			(2.63)
risk			−0.002
			(−0.61)
VAM*IC				−0.009***
				(−3.81)
IC				0.013***
				(8.39)
VAM*BIG4						−0.029*
						(−1.93)
BIG4						0.017
						(0.86)
VAM*SOE					0.013*
					(1.83)
SOE	−0.007	−0.008	−0.006	−0.005	−0.010	−0.007
	(−1.10)	(−1.18)	(−0.95)	(−0.79)	(−1.49)	(−1.00)
lnsize	−0.010***	−0.011***	−0.010***	−0.012***	−0.010***	−0.011***
	(−3.27)	(−3.42)	(−3.23)	(−3.84)	(−3.33)	(−3.43)
cash_inv	−0.068***	−0.067***	−0.068***	−0.072***	−0.068***	−0.068***
	(−9.79)	(−9.62)	(−9.77)	(−9.76)	(−9.79)	(−9.75)
lev	0.182***	0.182***	0.183***	0.201***	0.183***	0.181***
	(8.79)	(8.87)	(8.84)	(9.71)	(8.85)	(8.78)
bank	−0.171***	−0.170***	−0.173***	−0.185***	−0.173***	−0.168***
	(−6.05)	(−6.01)	(−6.10)	(−6.45)	(−6.07)	(−5.97)
ROA	0.114***	0.107***	0.115***	0.088***	0.112***	0.115***
	(4.55)	(4.31)	(4.59)	(3.03)	(4.48)	(4.62)
MP	0.031	0.103	0.029	0.013	0.028	0.022
	(0.47)	(1.60)	(0.45)	(0.18)	(0.44)	(0.35)
age	−0.043***	−0.041***	−0.043***	−0.041***	−0.043***	−0.043***
	(−5.67)	(−5.46)	(−5.65)	(−5.28)	(−5.62)	(−5.61)
growth	0.002	0.002	0.002	0.003	0.002	0.002
	(1.20)	(1.21)	(1.21)	(1.42)	(1.31)	(0.88)
sale	−0.119***	−0.125***	−0.114***	−0.109***	−0.115***	−0.115***
	(−3.56)	(−3.87)	(−3.45)	(−2.99)	(−3.48)	(−3.46)
constant	0.463***	0.440***	0.461***	0.377***	0.463***	0.464***
	(6.95)	(6.66)	(6.90)	(5.36)	(6.94)	(6.96)
Year FE	Y	Y	Y	Y	Y	Y
Industry FE	Y	Y	Y	Y	Y	Y
R^2	0.212	0.220	0.211	0.228	0.211	0.210
Adj. R^2	0.209	0.217	0.208	0.224	0.208	0.207
N	10965	10965	10965	9138	10965	10916

Note: This table presents the regression results on the effects of cross-sectional factors on trade credit (AR). In columns (1)-(6), the cross-sectional factors are marketization level (MK), market competition (HHI), enterprise risk (risk), internal governance (IC), ownership type (SOE) and audit quality (BIG4), respectively. T-values are presented in parentheses. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 6. Consequences of increasing trade credit supply.

	(1)	(2)
Variable	LOSS	DA
VAM	0.001***	0.023***
	(3.28)	(4.19)
SOE	−0.001***	−0.012***
	(−3.56)	(−2.61)
lnsize	−0.001***	−0.009***
	(−5.49)	(−4.01)
cash_inv	−0.002***
	(−6.11)
lev	0.005***	0.072***
	(6.94)	(6.00)
bank	−0.004***
	(−4.31)
ROA	−0.016***	0.002
	(−9.48)	(0.04)
MP	−0.001	−0.099***
	(−0.33)	(−3.07)
age	−0.001***	0.011**
	(−3.09)	(2.19)
growth	0.001
	(0.35)
sale	0.003**
	(2.41)
direct		0.057
		(1.43)
hfd5		−0.062***
		(−4.46)
constant	0.013***	0.019
	(6.34)	(0.40)
Year FE	Y	Y
Industry FE	Y	Y
R^2	0.190	0.032
Adj. R^2	0.187	0.028
N	10965	8222

Note: This table presents the estimates for the economic consequences of an aggressive trade credit policy. In columns (1) and (2), the dependent variables are bad debt losses (LOSS) and earnings management (DA), respectively. The independent variable is performance commitment in mergers and acquisitions (VAM). T-values are presented in parentheses. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 7. PSM balance test.

		Mean		Reduct (%)		t-test
Variable	Unmatched Matched	Treated	Control	Bias (%)	|bias|	t	p > |t|
SOE	U	0.228	0.449	−48.1	96.6	−26.57	0.000
	M	0.228	0.220	1.6		0.81	0.420
lnsize	U	8.370	8.305	5.4	62.0	2.90	0.004
	M	8.370	8.395	−2.1		−0.91	0.360
cash_inv	U	0.113	0.115	−0.7	−82.8	−0.42	0.673
	M	0.113	0.116	−1.3		−0.60	0.546
lev	U	0.409	0.446	−18.3	97.4	−10.19	0.000
	M	0.409	0.408	0.5		0.22	0.829
bank	U	0.126	0.151	−19.4	94.8	−10.50	0.000
	M	0.126	0.128	−1.0		−0.48	0.631
ROA	U	0.061	0.059	3.1	84.2	1.88	0.060
	M	0.061	0.061	0.5		0.22	0.828
MP	U	0.020	0.027	−13.5	98.4	−7.26	0.000
	M	0.020	0.020	−0.2		−0.12	0.906
age	U	8.725	8.672	14.7	66.7	8.16	0.000
	M	8.725	8.742	−4.9		−2.27	0.023
growth	U	0.392	0.152	43.0	88.6	30.68	0.000
	M	0.392	0.364	4.9		1.73	0.083
sale	U	0.074	0.070	4.8	90.8	2.72	0.007
	M	0.074	0.074	−0.4		−0.19	0.850

Note: This table presents the PSM balance test results. All variables are reported in Table 1.

Table 8. Robustness tests.

	(1)	(2)	(3)	(4)
Variable	AR	AR	AR_	AR
VAM	0.024***	0.010**	0.015***
	(6.19)	(2.55)	(5.23)
VAM_time				0.001**
				(2.36)
SOE	−0.006	−0.006	−0.012**	−0.006
	(−1.16)	(−0.91)	(−2.22)	(−0.98)
lnsize	−0.020***	−0.008**	−0.013***	−0.010***
	(−8.66)	(−2.55)	(−4.98)	(−3.34)
cash_inv	−0.091***	−0.071***	−0.051***	−0.069***
	(−12.14)	(−9.36)	(−8.93)	(−9.79)
lev	0.237***	0.183***	0.139***	0.183***
	(12.87)	(8.38)	(8.40)	(8.83)
bank	−0.169***	−0.182***	−0.127***	−0.173***
	(−6.64)	(−6.21)	(−5.39)	(−6.08)
ROA	0.129***	0.154***	0.077***	0.113***
	(4.70)	(5.37)	(3.62)	(4.51)
MP	0.026	0.028	0.031	0.030
	(0.52)	(0.41)	(0.57)	(0.46)
age	−0.025***	−0.044***	−0.037***	−0.043***
	(−3.61)	(−5.70)	(−5.71)	(−5.64)
growth	0.000	0.002	−0.000	0.002
	(0.18)	(0.94)	(−0.20)	(1.31)
sale	−0.104***	−0.113***	−0.066**	−0.115***
	(−4.43)	(−3.12)	(−2.57)	(−3.48)
constant	0.372***	0.459***	0.407***	0.462***
	(6.08)	(6.77)	(7.17)	(6.93)
Year FE	Y	Y	Y	Y
Industry FE	Y	Y	Y	Y
R^2	0.257	0.212	0.236	0.210
Adj. R^2	0.253	0.209	0.233	0.207
N	7254	9300	10965	10965

Note: This table presents the robustness tests. Column (1) presents the regression results of PSM samples. Column (2) presents the regression results for the sample excluding the 2019 and 2020 samples. Columns (3) and (4) present alternative measures of trade credit (AR_) and performance commitment (VAM_time). T-values are presented in parentheses. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 9. Exclusionary explanation.

	(1)	(2)	(3)	(4)
	high current ratio	low current ratio	high financing constraint	low financing constraint
Variable	AR	AR	AR	AR
VAM	0.007**	0.009***	0.011***	0.007*
	(2.11)	(2.59)	(2.96)	(1.78)
SOE	−0.003	−0.007**	−0.009***	−0.001
	(−0.92)	(−2.10)	(−2.63)	(−0.19)
lnsize	−0.020***	−0.004***	−0.006***	−0.015***
	(−10.57)	(−2.74)	(−2.99)	(−8.49)
cash_inv	−0.165***	−0.040***	−0.052***	−0.089***
	(−16.26)	(−8.86)	(−9.54)	(−14.39)
lev	0.371***	0.167***	0.177***	0.188***
	(25.89)	(14.70)	(16.20)	(16.42)
bank	−0.191***	−0.153***	−0.203***	−0.134***
	(−8.83)	(−11.19)	(−12.98)	(−7.85)
ROA	0.158***	0.073***	0.093***	0.124***
	(6.99)	(3.47)	(4.18)	(5.73)
MP	0.105**	−0.036	0.070*	−0.019
	(2.53)	(−1.01)	(1.80)	(−0.49)
age	−0.035***	−0.046***	−0.026***	−0.039***
	(−8.46)	(−9.78)	(−3.24)	(−6.99)
growth	0.000	0.002	0.005***	−0.003
	(0.12)	(0.81)	(2.73)	(−1.04)
sale	−0.062***	−0.186***	−0.068***	−0.183***
	(−3.63)	(−8.52)	(−3.68)	(−8.71)
constant	0.413***	0.438***	0.292***	0.446***
	(10.49)	(10.21)	(4.08)	(8.78)
Year FE	Y	Y	Y	Y
Industry FE	Y	Y	Y	Y
R^2	0.293	0.220	0.186	0.244
Adj. R^2	0.287	0.215	0.181	0.238
N	5224	5741	5640	5325
chi-sq test p-value	0.728		0.519

Note: This table presents the regression results on the effects of the current ratio and financing constraints on trade credit (AR). T-values are presented in parentheses. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table

	Acquirer	Target	Transaction Year	Transaction Size (in million RMB)	PerformanceCommitment	Compensation mode
1	Deluxe Family Co., Ltd	Beijing Graphene Holding Group Co. LTD	2015	750	Total net profit is no less than 7.41 million RMB from 2015 to 2017	Cash; the chairman and secretary were criticized in a circulated notice.
2	Jiuzhitang Co., Ltd	YouBo Pharmaceutical Co., Ltd	2015	6,517.81	After deducting non-recurring gains and losses, net profit attributable to owners of parent company is no less than 463, 518 and 588 million RMB for the 2015, 2016 and 2017, respectively	Fulfillment (by 101.29%, 100.69%,101.66%, respectively)
3	Pengxin International Mining Co., Ltd,	Ningbo Tianhong Yihua Trading Co., LTD	2018	1,908.82	After deducting non-recurring gains and losses, net profit attributable to owners of parent company is no less than 1943.86 million RMB from 2018 to 2024.	Stock and Cash
4	Shenzhen GuoHua Network Security Technology Co., Ltd	Beijing ZhiYou Network Security Technology Co., Ltd	2019	1,281	After deducting non-recurring gains and losses, net profit attributable to owners of parent company is no less than 90, 117 and 152.1 million RMB for the first, second and third years following the M&A, respectively.	Stock
5	Beijing SPC Environment Protection Tech Co., Ltd.	Shenzhen ShenShui water Resources Consulting Co. LTD	2021	440	Total net profit is no less than 240 million RMB from 2021 to 2023	Fulfillment