Maturity Overhang: Evidence from M&A

Abstract

Maturity overhang occurs when shorter debt maturities raise rollover risk, reducing investment, which we study with acquisitions. Using bond transaction data, we build a novel market-based rollover-risk measure and exploit the 2011 Maturity Extension Program as an exogenous shock. Rollover risk dampens M\&A at the firm and aggregate levels: a one-standard-deviation increase reduces acquisition size by approximately 20% of its sample mean and lowers all-cash offer propensity by 4.3\%. Equity markets react positively to cash payment only when acquirers have low rollover risk. Finally, a dynamic model reveals precautionary savings and rollover risk as drivers of maturity overhang.

Keywords: Mergers, Rollover risk, Debt maturity, Cash holding, Leverage

JEL Classification: G32, G33, G34