Cash Holdings and Bond Returns Around Takeovers

Podolski, Edward; Truong, Cameron; Veeraraghavan, Madhu

doi:10.2139/ssrn.2431560

Cash Holdings and Bond Returns Around Takeovers

International Review of Financial Analysis 46, 1-11, July 2016 Forthcoming

43 Pages Posted: 1 May 2014 Last revised: 6 Jun 2016

See all articles by Edward Podolski

Edward Podolski

Deakin University; Financial Research Network (FIRN)

Cameron Truong

Monash University; Financial Research Network (FIRN)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Date Written: March 1, 2016

Abstract

Using a large sample of 2,712 unique U.S. domestic takeovers over the period 1993 to 2014, we show a negative relation between the level of cash holdings and post-announcement corporate bond returns. Our findings support the agency cost of cash holdings view and show that bondholders and shareholders share the same interests with respect to cash policy around takeovers. We further find that cash holdings are viewed less negatively by bondholders in firms with strong shareholders. This paper is the first to document the role of cash holdings on bondholder wealth around takeover announcements.

Keywords: Takeovers, Cash Holdings, Agency Conflicts, Financial Constraints, Shareholder Power

JEL Classification: G14, G30, G32, G34

Suggested Citation: Suggested Citation

Podolski, Edward and Truong, Cameron and Veeraraghavan, Madhu, Cash Holdings and Bond Returns Around Takeovers (March 1, 2016). International Review of Financial Analysis 46, 1-11, July 2016 Forthcoming, Available at SSRN: https://ssrn.com/abstract=2431560 or http://dx.doi.org/10.2139/ssrn.2431560