Debt maturity and the marginal value of cash holdings

Hail Jung and Sanghak Choi

Finance Research Letters, 2024, vol. 70, issue C

Abstract: This study investigates the impact of debt maturity on the marginal value of cash holdings. It posits that short-term debt acts as a crucial governance mechanism by reducing agency conflicts and aligning managerial actions with shareholder interests. Using a sample of U.S. public firms, the results indicate that firms with higher proportions of short-term debt have a greater marginal value of cash, reflecting more efficient resource allocation and reduced managerial opportunism. The necessity for frequent capital market interactions associated with short-term debt mitigates agency conflicts. Additionally, the study explores three potential mechanisms: financial constraints, managerial moral hazard, and information asymmetry.

Keywords: Marginal value of cash holdings; Debt maturity; Short-term debt; Agency conflicts (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013813

DOI: 10.1016/j.frl.2024.106352

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