Why Do US Firms Use More Long-Term Debt Post Activist Interventions?

58 Pages Posted: 10 Aug 2019 Last revised: 11 Jan 2020

See all articles by Amanjot Singh

Amanjot Singh

Deakin University - Department of Finance

Saikat S. Deb

Deakin University - School of Accounting, Economics and Finance

Harminder Singh

Deakin University - School of Accounting, Economics and Finance

Date Written: June 28, 2019

Abstract

We find that US firms increase the use of long-term debt post hedge fund activism. The target firms' median proportion of debt maturing in more than 3 years increases by 19% in three years around the activists’ interventions. Firms with a lower level of leverage, research and development expenditure and cash holdings are the ones witnessing an increase in debt maturity profile. Our results indicate that this debt maturity change may not be influenced by bankers’ reluctance to provide capital (supply-side constraints) but due to targets’ increasing reliance on long-term public debt (demand-side factors). Hedge fund activism increases the propensity to raise long-term public debt in target firms. This indicates that new long-term debtholders believe in ‘shared benefits’ hypothesis by extending longer-term debt to target firms. The overall increase in debt maturity is more pronounced in target firms associated with governance reforms. Collectively, our findings suggest possible governance substitution from short-term debtholders to activist hedge funds.

Keywords: Debt maturity structure, Hedge fund activism, 13D filings

JEL Classification: G30, G32

Suggested Citation

Singh, Amanjot and Deb, Saikat Sovan and Singh, Harminder, Why Do US Firms Use More Long-Term Debt Post Activist Interventions? (June 28, 2019). Available at SSRN: https://ssrn.com/abstract=3430923 or http://dx.doi.org/10.2139/ssrn.3430923

Amanjot Singh

Deakin University - Department of Finance ( email )

Burwood, Victoria 3125
Australia

Saikat Sovan Deb (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

Building lb Room 5.305
221 Burwood Highway Victoria
Burwood, Victoria 3125
Australia
0061 3 92517745 (Phone)
+61 3 9244 6283 (Fax)

HOME PAGE: http://www.deakin.edu.au/buslaw/aef/

Harminder Singh

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

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