Cash Is Not King: Evidence from the Commercial Paper Market

Guillaume Vuillemey, Sven Klinger and Olav Syrstad

No 16043, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Using new transaction-level data for non-financial commercial paper (CP) in the U.S., we show that companies systematically reduce their outstanding short-term debt on quarterly and annual disclosure dates. Constraints on CP lending supply cannot explain this pattern. Instead, firms prefer repaying short-term debt over disclosing high cash holdings to signal that their cash is readily available and not trapped in foreign subsidiaries. Consistent with this interpretation, we show that firms with higher cash holdings, more sales in regions with tight capital controls, or with higher debt-equity ratios compared to industry peers reduce their short-term debt more aggressively at disclosure dates.

Keywords: Cash; Commercial paper; Adverse selection; Disclosure; Window dressing (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2021-04
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