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

Qianqian Huang, Feng Jiang and Wu, Szu-Yin (Jennifer)

Journal of Corporate Finance, 2018, vol. 53, issue C, 133-154

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.

Keywords: Debt maturity; Short-maturity debt; Acquisitions; Cash holdings; Agency conflicts (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:corfin:v:53:y:2018:i:c:p:133-154