Cash Holdings and Debt Structure

44 Pages Posted: 4 Jan 2019

See all articles by Paolo Colla

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

Yingdong LIN

Zhejiang Gongshang University (ZJGSU)

Florian Nagler

Bocconi University; Centre for Economic Policy Research (CEPR); IGIER - Innocenzo Gasparini Institute for Economic Research

Date Written: December 20, 2018

Abstract

We empirically examine how corporate cash holdings relate to debt structure, that is, the fraction of bond financing. We find that the relation between cash holdings and bond financing is U-shaped in the cross-section of firms. That is, firms that do not use bond financing or those that are entirely bond financed exhibit the highest cash holdings. The differential in cash holdings due to heterogeneity in bond financing is substantial and amounts up to 20% of assets. Moreover, the intensity of bond financing is also non-linearly related to market-to-book assets, firm size and leverage. We present a model of financial constraints to rationalize these patterns.

Keywords: Cash Holdings, Debt Structure, Bonds, Loans, Financial Constraints

JEL Classification: G32

Suggested Citation

Colla, Paolo and LIN, Yingdong and Nagler, Florian, Cash Holdings and Debt Structure (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=3304617 or http://dx.doi.org/10.2139/ssrn.3304617

Paolo Colla

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Yingdong LIN

Zhejiang Gongshang University (ZJGSU) ( email )

Department Of Statistics & Mathematics
Zhejiang
China

Florian Nagler (Contact Author)

Bocconi University ( email )

Via Roentgen 1
Milan, MI 20136
Italy

HOME PAGE: http://sites.google.com/site/floriannagler/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Milan, MI 20136
Italy

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