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

See all articles by Kelvin Jui Keng Tan

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Jia Min Lee

University of Queensland - Business School

Robert W. Faff

University of Queensland

Date Written: January 12, 2015

Abstract

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

Tan, Kelvin Jui Keng and Lee, Jia Min and Faff, Robert W., Short-Selling Pressure and Last-Resort Debt Financing: Evidence from 144A High-Yield Risk-Adjusted Debt (January 12, 2015). Forthcoming in Accounting and Finance. Available at SSRN: https://ssrn.com/abstract=2311528 or http://dx.doi.org/10.2139/ssrn.2311528

Kelvin Jui Keng Tan (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Jia Min Lee

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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