Short-Term Debt as Bridge Financing: Evidence from the Commercial Paper Market

68 Pages Posted: 15 Apr 2008 Last revised: 12 Nov 2013

See all articles by Matthias Kahl

Matthias Kahl

University of California, Los Angeles (UCLA) - Anderson School of Management

Anil Shivdasani

University of North Carolina Kenan-Flagler Business School

Yihui Wang

Fordham University

Date Written: November 11, 2013

Abstract

We analyze why firms use non-intermediated 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 activity is driven by a desire to minimize transactions 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. We find that CP is often refinanced with long-term bond issuance to reduce rollover risk.

Keywords: Commercial Paper, Short-Term Debt, Capital Structure, Bridge Financing, Rollover Risk, Transaction Costs

Suggested Citation

Kahl, Matthias and Shivdasani, Anil and Wang, Yihui, Short-Term Debt as Bridge Financing: Evidence from the Commercial Paper Market (November 11, 2013). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1120068 or http://dx.doi.org/10.2139/ssrn.1120068

Matthias Kahl (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095
United States

Anil Shivdasani

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3182 (Phone)
919-962-2068 (Fax)

Yihui Wang

Fordham University ( email )

33 West 60th Street
New York, NY 10023
United States

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