Does short-maturity debt discipline managers? Evidence from cash-rich firms' acquisition decisions

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

6 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)133-154
Journal / PublicationJournal of Corporate Finance
Volume53
Online published9 Oct 2018
Publication statusPublished - Dec 2018

Abstract

We study the disciplinary role of short-maturity debt in cash-rich firms. We report evidence that such debt mitigates cash-rich firms' overinvestment in acquisitions. The disciplinary role is mostly concentrated among cash-rich firms that are weakly governed and have limited access to the public debt market and is also more pronounced for cash-rich firms that operate in less competitive industries. Furthermore, for cash-rich acquirers, high levels of short-maturity debt are associated with higher acquisition announcement returns and better post-acquisition operating performance. Overall, our results highlight the effective role of short-maturity debt in reducing agency cost.

Research Area(s)

  • Debt maturity, Short-maturity debt, Acquisitions, Cash holdings, Agency conflicts