Cash Holdings and Bond Returns Around Takeovers

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

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

Edward Podolski (Contact Author)

Deakin University ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia

Financial Research Network (FIRN) ( email )

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

Cameron Truong

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Financial Research Network (FIRN)

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

HOME PAGE: http://www.firn.org.au

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

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