Petya Platikanova

S&P 500 index addition, liquidity management and Tobin's Q

This study examines the revision in cash holdings and the market valuation of investment opportunities of 475 firms added to the Standard & Poors 500 (S&P 500) stock market index from 1980 to 2010. We find that newly indexed firms have evolved to significantly lower cash balances, which we partially explain by the decreasing growth opportunities following index inclusion. Consistent with index inclusion loosening financial constraints, we document a larger decrease in cash for index inclusions in sectors with high financial dependence. We sort S&P 500 inclusions by corporate governance quality but do not find any empirical support that changes in cash and Tobins Q are related to management entrenchment.

Debt Maturity and Tax Avoidance

Abstract This study proposes and empirically tests the argument that creditors are likely to extend debt with a shorter maturity to tax-avoiding firms so that they can frequently re-evaluate tax-related risk in debt contracting. Using effective tax rates and uncertain tax benefits as a proxy for tax avoidance, I find that tax-avoiding firms have a larger proportion of short-maturity debt compared to other firms. The empirical findings further show that firms with unsustainable tax positions and with subsidiaries in tax-haven countries are more likely to employ short-maturity debt. Collectively, the empirical findings suggest that frequent debt renegotiations increase the exposure of tax-avoiding firms to credit supply shocks, contributing to their higher demand for cash.

Debt Specialization and Information Opaqueness

In this study, we suggest that level of information opaqueness determines the propensity of publicly listed firms to have debt financing from only a few debt types (i.e., debt specialization). Using accruals quality as a proxy for information opaqueness, we find that the degree of debt specialization is lower for firms with high-quality accruals. This result is consistent with the notion that information collection and monitoring costs are higher for firms that have higher informational opacity, explaining the tendency toward debt specialization. We further argue that the demand for monitoring by creditors is lower for firms with intensified institutional monitoring. The empirical findings show that firms with more concentrated institutional owners are more likely to be less specialized by debt type and that debt specialization is less sensitive to accruals quality in such firms. Using earnings timeliness and readability of annual reports as alternative proxies for information quality, we confirm the higher propensity to concentrate debt claims by type. We further examine how debt specialization changes following the arrival of bad news and find that the debt structure is more sensitive to accruals quality following the issuance of SEC letters regarding reporting deficiencies.