Short-Selling Pressure and Last-Resort Debt Financing: Evidence from 144A High-Yield Risk-Adjusted Debt
Forthcoming in Accounting and Finance
39 Pages Posted: 19 Aug 2013 Last revised: 28 Apr 2015
Date Written: January 12, 2015
This paper examines why non-financial publicly traded firms knowingly issue wealth destroying Rule 144A debt, which is associated with a negative announcement return and a higher yield. We provide a plausible “demand-side” explanation (i.e. last-resort debt financing) for the motivation for issuing such debt. We also provide evidence as to what drives this negative reaction. Our findings suggest that the negative market impact is mainly driven by short-selling pressure from convertible bond arbitrageurs.
Keywords: Rule 144A Debt; Convertible Bond Arbitrage; Last-resort Debt Financing; Operational Financing Needs; Market Reaction
JEL Classification: G32
Suggested Citation: Suggested Citation