Signaling effect of cash holdings adjustment before bond issuance |
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| Institution: | 1. School of Economics and Management, Nanchang University, Nanchang, China;2. Department of Finance, National Central University, Taoyuan, Taiwan;1. School of Economics and Management, Nanchang University, Nanchang, China;2. Department of Finance, National Central University, Taoyuan, Taiwan;1. Department of Finance, School of Business, Hohai University, China;2. Department of Management Science and Engineering, School of Business, Hohai University, China;1. School of Finance, Zhejiang University of Finance and Economics, Hangzhou, China;2. Financial Innovation and Inclusive Finance Research Center, Zhejiang University of Finance and Economics, Hangzhou, China;1. Business School, Hunan University, Changsha 410082, China;2. Center for Finance and Investment Management, Hunan University, Changsha 410082, China;1. University of Liverpool Management School, Chatham Building, Chatham Street, Liverpool L69 7ZH, UK;1. School of Business and Economics, University of Wisconsin – Stevens Point, 2100 Main Street, Stevens Point, WI 54481, United States of America;2. Department of Finance and Business Law, University of Wisconsin Whitewater, 800 Main Street, Whitewater, WI 53190, United States of America |
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| Abstract: | Using Fixed Income Securities Database bond issuance data, we examine how firms' cash holding adjustment exhibits a signaling effect prior to corporate bond issuance; we also examine the meaning of this effect on firms' capital policy. Analyzing a sample of U.S. bonds from 1981 to 2018, the results found that bond issuers adjust their cash holdings higher prior to bond issuance compared to non-issuer firms. After controlling for various firm and bond characteristics, we found that firms that adjust their cash holdings higher attract investors' attention, thus resulting in lower bond spreads. Our results also perform different patterns in subsamples when adopting accrued and real earnings management, financial constraints, and corporate opacity. |
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