Debt dispersion and corporate liquidity

Abstract

Cash holdings are significantly lower for firms with dispersed debt maturity, and this finding is robust to entropy balancing and allowing for the simultaneous selection of dispersion and cash holdings. The relation is strongest for firms with shorter debt maturity and firms that rely on precautionary cash, such as financially constrained firms and firms with volatile cash flows. Markets place a lower value on the cash of firms with high or increasing dispersion, and these firms retain less cash. Collectively, the evidence implies that firms can hedge rollover risk with dispersed debt maturity as an alternative to holding costly cash.