Short‐selling pressure and last‐resort debt finance: evidence from 144A high‐yield risk‐adjusted debt |
| |
Authors: | Kelvin Jui Keng Tan Jia Min Lee Robert W Faff |
| |
Institution: | UQ Business School, University of Queensland, Brisbane, QLD, Australia |
| |
Abstract: | This study 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: | Convertible bond arbitrage Last‐resort debt financing Market reaction Operational financing needs Rule 144A debt |
|