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Short‐Term Debt as Bridge Financing: Evidence from the Commercial Paper Market
Author(s) -
KAHL MATTHIAS,
SHIVDASANI ANIL,
WANG YIHUI
Publication year - 2015
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12216
Subject(s) - rollover (web design) , business , finance , debt , issuer , investment (military) , financial system , bond market , bond , term (time) , capital market , capital (architecture) , monetary economics , economics , physics , quantum mechanics , archaeology , politics , world wide web , computer science , political science , law , history
ABSTRACT We analyze why firms use nonintermediated short‐term debt by studying the commercial paper (CP) market. Using a comprehensive database of CP issuers and issuance activity, we show that firms use CP to provide start‐up financing for capital investment. Firms’ CP issuance is driven by a desire to minimize transaction costs associated with raising capital for new investment. We show that firms with high rollover risk are less likely to enter the CP market, borrow less CP, and borrow more from bank credit lines. Further, CP is often refinanced with long‐term bond issuance to reduce rollover risk.