Discussion Paper Details

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Title: Cash Is Not King: Evidence from the Commercial Paper Market

Author(s): Sven Klinger, Olav Syrstad and Guillaume Vuillemey

Publication Date: April 2021

Keyword(s): Adverse Selection, cash, Commercial paper, Disclosure and Window dressing

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Klinger, S, Syrstad, O and Vuillemey, G. 2021. 'Cash Is Not King: Evidence from the Commercial Paper Market'. London, Centre for Economic Policy Research.