Do Firms Use Commercial Paper to Enhance Flexibility?
Dr. Matthias Kahl from University of North Carolina and he will be presenting his paper “Do Firms Use Commercial Paper to Enhance Financial Flexibility? Abstract: We analyze the role of commercial paper (CP) in financing long-term investment. Using a comprehensive sample of CP issuers from 1971 to 2005, we show that, unlike other debt, CP borrowing is positively correlated with investment expenditures and negatively correlated with cash holdings. We argue that firms access the CP market to enhance their financial flexibility. CP access allows firms facing uncertain funding needs to make borrowing decisions only when their financing needs become known. Our evidence is consistent with this hypothesis. CP issuers enter the market when they face increased uncertainty about their cash flow or investment. After firms exit the CP market, their investment and cash flow variability declines. Moreover, our evidence suggests that firms use CP as bridge financing and also to fund acquisitions. If
