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Precautionary!Finance:!Evidence!from!the!Timing!and!Size!of!
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Debt!and!Equity!Issues! !
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R.!David!McLean!(Driehaus!College!of!Business,!DePaul!University)!
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Berardino!Palazzo!(Questrom!School!of!Business,!Boston!University)!
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January!2016!
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Abstract!
The!precautionary!motive!for!finance!predicts!that!firms!make!large!issues!to!build!
financial! liquidity! when! capital! market! conditions! are! favorable,! and! issue! less! or!
not! at! all! when! conditions! are! unfavorable.! The! liquidity! squeeze! framework!
predicts!that!firms!issue!to!fund!liquidity!squeezes,!regardless!of!market!conditions.!
We!find!that!both!frameworks!help!explain!the!timing!of!issuance!decisions,!but!only!
the! precautionary! framework! explains! issue! size.! With! respect! to! timing,! the!
majority!of!firms!facing!exUante!liquidity!squeezes!do!not!issue.!Squeezed!firms!issue!
if!capital!market!conditions!are!favorable,!but!cut!spending!otherwise.!With!respect!
to! size,! larger! issues! are! not! associated! with! larger! liquidity! squeezes.! Firms! raise!
more! capital! when! market! conditions! are! favorable,! and! the! majority! of! the!
proceeds! go! towards! building! financial! liquidity,! both! by! increasing! cash! and! by!
refinancing!debt!to!extend!maturity.!!
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! Contact! information:! rdmclean@ualberta.ca! and! bpalazzo@bu.edu.! We! thank! Rui! Albuquerque,!
Andrea!Buffa,!David!Denis,!Jarrad!Harford,!Michelle!Lowry,!Evgeny!Lyandres,!Neslihan!Ozkan,!Jeffrey!
Pontiff,! Mengxin! Zhao! and! seminar! participants! at! Boston! University,! the! University! of! Alberta,! the!
University! of! Tennessee,! and! conference! participants! at! the! Asian! FMA! (Tokyo)! and! the! BristolU
Manchester! Corporate! Finance! Conference! for! helpful! comments.! McLean! is! grateful! to! the!
Christopher! L.! Keely! Chair! for! financial! ! support.! A! much! different! version! of! this! paper! was!
circulated!under!the!title!“Massive!Debt!and!Equity!Issues”.!
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In! this! paper! we! study! the! effects! of! precautionary! motives! and! liquidity!
squeezes! on! debt! and! equity! issuance! decisions.! Myers! (1984)! suggests! that! firms!
will! only! issue! securities! in! response! to! liquidity! squeezes.! In! his! framework!
external!finance!is!costly,!but!the!costs!are!fixed,!so!there!are!no!good!or!bad!times!
to! raise! capital.! Firms! therefore! only! issue! when! they! need! capital,! and! spend! the!
capital! that! they! raise.! Deangelo,! Deangelo,! and! Stulz! (2010)! argue! that! liquidity!
squeezes! can! explain! most! equity! issuance! decisions.! Consistent! with! this! idea,!
influential!papers!by!Carlson,!Fisher,!and!Giammarino!(2006!and!2010)!assume!that!
equity!issue!proceeds!are!spent!converting!growth!options!to!assetsUinUplace.!Huang!
and!Ritter!(2015)!find!that!liquidity!squeezes!also!motivate!debt!issues.!!
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If! the! costs! of! external! finance! are! not! fixed,! but! instead! change! over! time,!
then! liquidity! squeezes! can! still! cause! a! firm! to! issue,! however! capital! market!
conditions!will!matter!too.!If!capital!market!conditions!are!favorable,!then!firms!may!
make!large!issues!and!save!the!proceeds!for!later,!so!as!to!have!funds!on!hand!when!
capital! market! conditions! are! unfavorable.! If! capital! market! conditions! are!
unfavorable,!then!firms!facing!liquidity!squeezes!may!choose!to!(or!have!to)!forego!
issuing!and!instead!cut!spending.!These!are!the!essential!empirical!prediction!of!the!
precautionary! motive! framework. 1 The! precautionary! motives! framework! is!
developed! in! McLean! (2011),! Bolton,! Chen! and! Wang! (2013),! Eisfeldt! and! Muir!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1!The!precautionary!motive!for!issuance!builds!on!the!precautionary!motive!for!cash!savings,!
which! is! developed! in! Keynes! (1936)! and! Opler,! Pinkowtiz,! Stulz,! and! Williamson! (1999),! and! the!
marketUtiming! framework! of! Loughran! and! Ritter! (1995,! 1997),! Spiess! and! AffleckUGraves! (1995),!
and!Baker!and!Wurgler!(2000,!2002).
1!
(2014),! and! Warusawitharana! and! Whited! (2015).!2!! These! papers! mainly! focus! on!
equity!issues.!In!this!paper!we!expand!the!scope!to!include!debt!issues.!
We!conduct!our!study!using!quarterly!Compustat!data!to!identify!longUterm!
debt! issues! and! equity! issues! that! exceed! 5%! of! assets.! To! better! compare! the!
importance! of! liquidity! squeezes! and! precautionary! motives! on! issuance! decisions!
we!separately!examine!the!decision!to!issue!and,!conditional!on!issuing,!the!size!of!
the!issue.!Most!papers!treat!the!decisions!to!issue!and!how!much!to!issue!as!a!single!
decision.!Yet!it!is!often!the!case!that!firms!already!committed!to!issuing!change!the!
issue! date! or! size,! showing! that! an! issue’s! timing! and! size! can! be! two! unique!
decisions.!!
We! begin! by! studying! the! decision! to! issue! debt! or! equity.! The! liquidity!
squeeze! framework! predicts! that! virtually! all! squeezed! firms! will! issue,! regardless!
of! capital! market! conditions,! and! that! all! issuers! face! liquidity! squeezes.! The!
precautionary! motive! predicts! that! many! squeezed! firms! will! not! issue! when!
conditions! are! unfavorable,! and! will! instead! cut! spending,! and! that! both! squeezed!
and!nonUsqueezed!firms!could!issue!if!capital!market!conditions!are!favorable.!!
We! use! an! ex#ante! liquidity! squeeze! measure.! We! assume! that! a! firms! is!
liquidity! squeezed! if,! based! on! its! average! past! cash! burn! rate! over! the! last! 4!
quarters,!it!does!not!have!enough!cash!to!last!the!next!four!4!quarters.!The!median!
squeezed!firm!has!enough!cash!to!last!one!quarter,!yet!only!27%!of!squeezed!firms!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2!This!
is! consistent! with! what! has! been! argued! by! monetary! economics! for! some! time! (see!
Bernanke,!Gertler,!and!Gilchrist!(1996,!1999),!Bernanke!(2007),!and!Brunnermeier,!Eisenbach,!and!
Sannikov!(2012)).!
2!
issue!debt!or!equity!in!the!subsequent!quarter,!while!73%!do!not!issue,!and!instead!
make!large!cuts!in!spending.!!
Consistent! with! precautionary! motives,! favorable! capital! market! conditions!
can!separate!squeezed!issuers!from!squeezed!nonUissuers.!Using!a!propensity!score!
matching!exercise,!we!match!squeezed!firms!that!issue!to!squeezed!firms!that!do!not!
issue!via!size,!bookUtoUmarket,!cash!holdings,!and!other!fundamentals.!We!are!able!
to!closely!match!firms!between!the!two!samples,!and!find!that!after!matching!capital!
market!conditions!have!a!significant!effect!on!whether!squeezed!firms!issue!or!not.!
These!results!do!not!support!the!argument!that!liquidity!squeezes!alone!can!explain!
the! timing! of! issuance! decisions,! but! instead! suggest! roles! for! both! the!
precautionary!motive!and!liquidity!squeeze!frameworks.!
As!we!mention!above,!two!other!papers!that!also!study!liquidity!squeezes!in!
the! context! of! raising! capital! are! Deangelo,! Deangelo,! and! Stulz! (2010)! and! Huang!
and! Ritter! (2015).! Both! of! these! papers! show! that! issuers! tend! to! face! liquidity!
squeezes,! but! neither! paper! studies! squeezed,firms,that! do,not,issue,! like! we! do.! If!
liquidity! squeezes! explain! why! firms! initially! decide! to! issue,! then! all! firms! facing!
liquidity! squeezes! should! issue.! We! instead! find! that! most! squeezed! firms! do! not!
issue,! and! that! capital! market! conditions! can! help! determine! whether! squeezed!
firms!issue!or!not.!!
We! find! that! 49%! of! equity! issuers! and! 38%! of! debt! issuers! face! liquidity!
squeezes.! So! although! many! firms! may! be! motivated! to! issue! by! an! impending!
liquidity! squeeze,! a! substantial! portion! of! issuers! are! not! squeezed.! Huang! and!
Ritter!(2015)!measure!liquidity!squeezes!both!exUante!(as!we!do)!and!exUpost.!The!
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exUpost! measure! shows! whether! a! firm! could! have! completed! its! actual! spending!
during! the! issuance! year! without! the! issuance! proceeds.! Huang! and! Ritter! (2015)!
find!that!75%!(52%)!of!debt!(equity)!issuers!were!liquidity!squeezed!using!the!exU
post! measure,! but! that! only! 43%! (42%)! of! debt! (equity)! issuers! were! squeezed!
using! the! exUante! measure.! Similarly,! the! headline! finding! in! Deangelo,! Deangelo,!
and! Stulz! is! that! 62%! of! equity! issuers! were! squeezed! using! an! exUpost! measure.!
However,! if! they! instead! use! an! exUante! measure! and! assume! that! capital!
expenditures!remained!the!same!in!the!issuance!year!as!in!the!previous!year,!then!
they!find!that!only!40%!of!issuers!were!squeezed.!!Hence,!both!of!these!papers!and!
our!study!find!that!the!majority!of!issuers!did!not!face!liquidity!squeezes!when!exU
ante!measures!are!used.!!!
Huang!and!Ritter!point!out!that!the!exUpost!liquidity!squeeze!measure!is!less!
conservative,! because! it! assumes! that! all! of! the! spending! in! the! issuance! year! is!
exogenous!and!the!result!of!a!liquidity!squeeze,!which!is!unlikely.!Our!findings!also!
contradict! this! assumption.! Our! findings! suggest! that! firms! have! a! good! deal! of!
control! over! their! spending,! and! that! many! spending! and! issuance! decisions! are!
endogenously! determined! by! capital! market! conditions,! which! is! consistent! with!
Stein!(1996),!Baker,!Stein!and!Wurgler!(2003),!and!McLean!and!Zhao!(2014).!!
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In! the! second! half! of! our! study! we! focus! on! the! determinants! of! issue! size,!
conditional!on!having!issued.!This!question!is!not!a!focus!of!Deangelo,!Deangelo,!and!
Stulz!(2010)!and!Huang!and!Ritter!(2015).!In!the!liquidity!squeeze!framework!the!
cost!of!external!finance!is!fixed.!Issue!size!is!determined!by!the!size!of!the!liquidity!
squeeze,!and!issuance!proceeds!are!promptly!spent!and!invested.!In!contrast,!in!the!
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precautionary! motives! framework! issue! size! can! vary! with! capital! market!
conditions,! and! the! proceeds! from! large! issues! are! often! used! to! build! financial!
liquidity.!!
Our!results!with! respect!to!issue!size!are!consistent!with!the!precautionary!
motives! framework,! but! not! the! liquidity! squeeze! framework.! Conditional! on!
issuing,!better!capital!market!conditions!lead!to!larger!issues.!In!contrast,!lower!cash!
holdings! and! higher! cash! burn! rates! are! not! associated! with! larger! issues.! In! fact,!
some!of!our!results!suggest!the!opposite.!The!proceeds!from!large!debt!and!equity!
issues! dwarf! nearUterm! spending,! and! are! mainly! used! to! build! financial! liquidity.!
We! find! that! 62%! of! large! equity! issues! are! saved! as! cash,! and! that! 71%! of! large!
longUterm! bond! issues! are! either! saved! as! cash! or! used! to! extend! maturity! by!
refinance!debt!that!is!maturing!in!the!next!2!to!5!years.!Moreover,!we!find!that!the!
cash!savings!from!debt!and!equity!issues!are!persistent,!and!are!not!spent!over!the!
subsequent! 8! quarters.! Taken! together,! our! results! suggest! that! precautionary!
motives!have!a!firstUorder!effect!on!issue!size.!
We! consider! the! idea! that! fixed! intermediary! fees! can! explain! why! some!
firms!issue!and!save!the!proceeds!as!cash.!Fixed!issuance!costs!encourage!firms!to!
issue!more!capital!than!needed,!so!as!to!avoid!having!to!issue!again!later.!However!it!
is!unlikely!that!fixed!costs!can!explain!our!findings.!We!find!that!issue!size!increases!
when!capital!market!conditions!are!more!favorable,!and!fixed!costs!cannot!account!
for! this.! Moreover,! Altinkilic! and! Hansen! (2000)! find! that! only! 10%! of! fees! for!
seasoned! debt! and! equity! issues! are! fixed,! while! the! rest! are! marginal,! and! that!
marginal,fees,are,increasing!for!larger!issues.!Put!differently,!there!are!diseconomies,
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of,scale!in!large!seasoned!issues.!The!reason!for!this!is!that!intermediaries!need!to!
find!buyers!for!securities,!so!larger!issues!require!more!work!(and!in!the!case!of!a!
firmUcommitment,!more!risk)!on!the!part!of!the!intermediary.!Hence,!intermediary!
fees!are!a!disincentive!for!making!large!issues.!
Our!findings!are!consistent!with!recent!papers!suggesting!that!firms!should!
build!financial!liquidity!when!capital!market!conditions!are!favorable.!Almeida!et!al.!
(2014)! and! Graham! and! Harvey! (2001)! report! surveys! in! which! CFOs! state! that!
liquidity! management! is! one! of! their! most! important! job! functions.! If! firms! could!
raise! capital! whenever! they! needed! to,! then! liquidity! management! would! not! be!
such!an!important!issue.!Using!this!intuition,!Bolton,!Chen!and!Wang!(2013),!Eisfeldt!
and! Muir! (2014),! and! Warusawitharana! and! Whited! (2015)! develop! models! in!
which! managers! build! cash! when! capital! market! conditions! are! favorable.! These!
papers!approach!the!problem!from!the!viewpoint!of!a!firm!that!is!trying!to!manage!
its!financial!liquidity!in!the!face!of!timeUvarying!capital!market!conditions.!We!show!
that!this!type!of!effort!has!firstUorder!effects!on!the!timing!and!especially!the!size!of!
debt!and!equity!issues.!!
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Denis! and! McKeon! (2012)! study! large! leverage! changes,! and! conclude! that!
financial! flexibility! has! a! firstUorder! effect! on! capital! structure! decisions.! We! study!
debt!issues!and!find!that!the!proceeds!from!large!issues!are!used!mainly!to!refinance!
existing! debt,! so! it! is! often! the! case! that! large! debt! issues! do! not! result! in! large!
leverage! changes.! Hence,! we! study! a! different! variable! than! Denis! and! McKeon!
(2012)!do.!Despite!this!difference,!our!results!also!suggest!that!financial!flexibility!is!
an!important!motive!in!both!debt!and!equity!issuance!decisions.!
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1.!Data!and!Sample!
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We!obtain!data!from!the!Compustat!quarterly!database.!Our!sample!period!is!
from!1984!through!2014.!We!exclude!nonUU.S.!firms,!firms!that!are!not!listed!on!one!
of!the!three!major!stock!exchanges!(Amex,!Nasdaq,!and!NYSE),!financial!firms!(SIC!
6000! –! 6999),! and! utilities! (SIC! 4000! –! 4999).! We! exclude! observations! that! are!
missing!either!total!assets!or!stock!price!data!from!the!previous!or!current!quarter.!
The!missing!stock!price!restriction!ensures!that!we!are!not!capturing!IPO!proceeds.!
Moreover,! we! eliminate! the! first! eight! quarterly! observations! for! each! firm! to!
further!ensure!IPO!proceeds!are!not!included!in!our!equity!issues.!!
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Our!main!variables!of!interest!are!cash!flow!from!equity!and!debt!issues.!In!
the!Compustat!quarterly!database,!both!of!these!variables!are!reported!as!yearUtoU
date! proceeds.! As! an! example,! equity! issues! (sstky)! in! quarter! 2! is! the! sum! of! the!
equity!issues!from!quarters!1!and!2.!The!quarter!3!equity!issue!is!the!sum!of!equity!
issues! from! quarters! 1,! 2,! and! 3.! To! get! the! actual! equity! issues! in! quarter! 3,! we!
subtract!the!quarter!2!equity!issues!from!the!quarter!3!equity!issues.!We!follow!the!
same! procedure! for! longUterm! debt! issues! (dltisy),! equity! and! longUterm! debt!
repurchases! (prstkcy! and! dltry),! capital! expenditures! (capxy),! and! acquisitions!
(aqcy).!More!generally,!any!Compustat!quarterly!variable!that!ends!in!“y”!reflects!a!
yearUtoUdate! sum,! whereas! variables! that! end! in! “q”! reflect! proceeds! for! that!
particular!quarter.!!
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Compustat! cash! flow! from! longUterm! debt! issues! contain! not! only! bond!
issues,! but! also! leases,! mortgages,! and! in! some! cases! are! reported! net! of! debt!
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repurchases.! When! debt! issues! from! Compustat! and! bond! issues! present! similar!
results,! we! only! report! the! former.! We! construct! our! bond! sample! by! combining!
data! from! Thomson! Reuters! SDC! database! and! data! from! Mergent! Fixed! Income!
Securities!Database!(FISD)!and!obtain!6,360!firmUquarters!observations!that!satisfy!
our! data! restrictions.! The! average! bond! issue! is! 15.5%! of! total! assets! and! has! a!
maturity!of!48!quarters.!We!exclude!bond!issues!with!maturity!less!then!5!years.!!
We!report!summary!statistics!for!the!primary!variables!used!in!this!study!in!
Table!1.!Our!balance!sheet!items!are!all!scaled!by!the!previous!quarter’s!total!book!
value!of!assets!(atq).!We!define!a!debt!(equity)!issue!as!a!firmUquarter!observation!
for!which!the!proceeds!from!longUterm!debt!(equity)!issues!are!greater!than!5%!of!
lagged!assets.!!The!equity!issues!variable!will!consist!mainly!of!private!placements!
and! seasoned! public! offerings.! McKeon! (2015)! shows! that! quarterly! equity! issues!
exceeding! either! 5%! of! assets! or! 3%! of! market! capitalization! virtually! always!
contain!a!private!placement!or!seasoned!offering,!with!5%!of!market!capitalization!
being! the! more! conservative! measure.! For! completeness! we! also! obtain! annual,
option!exercise!data!from!Investors!Responsibility!Research!Center!!(IRRC)!Dilution!
Database,! which! covers! Standard! and! Poor’s! (S&P)! 1,500! firms! between! 1998! and!
2011.!These!data!are!also!used!in!Chiang!et!al.!(2013)!and!Babenko,!Lemmon,!and!
Tserlukevich! (2011).! Among! equity! issuers! the! median! amount! option! proceeds,!
which! are! measured! annually,! is! 0.015.! The! median! equity! issue! in! our! sample! is!
0.20,!which!is!a!quarterly!number,!so!option!proceeds!can!only!account!for!a!small!
part!of!our!equity!issues.!
8!
As!we!explain!earlier,!with!debt!issues!the!variable!will!contain!not!only!bond!
issues,! but! also! leases,! mortgages,! and! in! some! cases! are! reported! net! of! debt!
repurchases.! In! instances! where! pure! bond! issues! produce! different! findings! than!
debt!issues!we!produce!results!for!both!bond!issues!and!debt!issues.!However!this!is!
only! a! factor! in! Tables! 8! and! 9,! where! we! study! how! the! issuance! proceeds! are!
spent.!
Cash! flow! is! net! income! (niq)! plus! depreciation! and! amortization! (dpq).!
Investment!is!the!sum!of!capital!expenditures!and!acquisitions.!The!cash!burn!rate!is!
investment! minus! cash! flow.! Cash! is! the! sum! of! cash! and! shortUterm! investment!
(cheq).! CashUquarters! is! the! ratio! of! cash! to! the! mean! of! the! cash! burn! rate,!
measured!over!the!last!four!quarters.!We!measure!size!using!total!revenues!(saleq)!
and! total! book! value! of! assets! (atq).! ! Both! variables! are! expressed! in! 2009! dollars!
using!the!implicit!price!deflator!for!the!U.S.!GDP.!All!of!the!variables!are!winsorized!
at!the!top!and!bottom!0.5%.!
!
!Table!1!shows!that!the!equity!issues,!debt!issues,!and!change!in!cash!are!all!
right!skewed.!With!each!of!the!series,!the!mean!values!are!positive!and!greater!than!
the! medians,! and! the! median! values! are! all! zero.! With! respect! to! equity! and! debt!
issues,! this! shows! that! when! firms! issue,! they! often! issue! very! large! amounts.! The!
right! skew! of! ΔCash! suggests! that! cash! savings! are! often! built! with! equity! and/or!
debt!issues.!Consistent!with!this!intuition,!the!cash!flow!variable!is!not!right!skewed;!
its!median!(0.023)!is!greater!than!its!mean!(0.010).!These!results!therefore!suggest!
that!large!issues!of!securities!drive!large!increases!in!cash,!which!is!consistent!with!
precautionary!finance.!We!explore!this!idea!more!in!the!tables!that!follow.!
9!
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2.!The!Decision!to!Issue!
In!this!part!of!the!paper!we!study!the!importance!of!liquidity!squeezes!and!
precautionary! motives! on! the! initial! decision! to! issue! either! debt! or! equity.! We!
study!the!decision!of!how!much!to!issue!later!in!the!paper.!!
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2.1.,Measuring,Liquidity,Squeezes,
!
To!measure!the!effects!of!liquidity!squeezes!on!issuance!decisions!we!create!
an! exUante! liquidity! squeeze! measure.! We! first! divide! a! firm’s! cash! holdings! by! its!
average! cash! burn! rate! during! the! preceding! four! quarters.! We! call! the! resulting!
ratio!the!firm’s!“cashUquarters”.!This!ratio!reveals!how!many!quarters!the!firm!can!
continue!its!current!spending!and!investing!without!raising!capital.!As!we!explain!in!
the!previous!section,!the!cash!burn!rate!is!the!firm’s!capital!expenditures!plus!any!
cashUfinanced! acquisitions! minus! its! cash! flow! from! operations! (net! income! plus!
depreciation!and!amortization).!If!the!firm’s!burn!rate!is!positive,!then!it!was!unable!
to! fully! fund! its! investment! and! operations! with! internal! cash! flow.! We! define! a!
liquidity!squeezed!firm!as!a!firm!with!fewer!than!4!cashUquarters.!!
!
2.2.,Do,Squeezed,Firms,Always,Issue?,
!
Table! 2! displays! results! concerned! with! whether! firms! facing! liquidity!
squeezes! tend! to! raise! capital! or! cut! spending.! As! we! explain! above,! we! define! a!
squeezed! firm! as! a! firm! whose! cash! holdings! will! not! last! more! than! 4! quarters!
based!on!its!average!cash!burn!rate!over!the!last!4!quarters.!We!have!51,755!firmU
10!
quarter! observations! that! meet! this! criterion.! Table! 2! shows! that! the! median!
squeezed!firm!only!has!enough!cash!to!last!1.056!quarters.!Based!on!this,!squeezed!
firms!should!issue!immediately.!!
As!we!explain!in!the!last!section,!we!define!a!debt!or!equity!issue!as!a!firmU
quarter!observation!for!which!the!proceeds!from!longUterm!debt!(equity)!issues!are!
greater!than!5%!of!lagged!assets.!!Panel!A!of!Table!2!shows!that!despite!having!only!
enough!cash!to!last!1!quarter,!most!squeezed!firms!do!not!issue!in!the!subsequent!
quarter.! We! find! that! 37,585! or! 73%! of! the! squeezed! firms! do! not! issue! equity! or!
debt.! The! median! cashUquarters! among! these! nonUissuers! is! 1.181,! so! to! survive!
these! firms! need! to! cut! spending,! and! this! is! what! we! observe.! Panel! B! of! Table! 2!
shows!that!the!median!squeezed!firm!that!does!not!issue!cuts!its!burn!rate!by!58%.!
Among!these!firms,!22,631!or!60%!survive!another!quarter!without!issuing,!and!cut!
spending! by! 63%! as! compared! to! the! average! burn! rate! used! to! compute! the!
liquidity!squeeze.!Finally,!7,766!or!21%!of!the!nonUissuing!squeezed!firms!go!a!full!
year! without! issuing,! cutting! spending! by! 67%! and! 65%! in! the! final! two! quarters!
relative!to!the!average!burn!rate!used!to!compute!the!liquidity!squeeze.!!
Hence,! although! nearUterm! funding! needs! may! encourage! firms! to! issue,!
nearUterm! funding! needs! are! by! themselves! insufficient! for! explaining! why! firms!
decide!to!issue,!as!literally!thousands!of!firms!with!funding!needs!do!not!issue!but!
instead!cut!spending.!!
These! results! also! show! why! it! is! problematic! to! use! an! exUpost! liquidity!
squeeze!measure.!An!exUpost!measure!assumes!that!the!firm!has!no!control!over!its!
cash! burn! rate;! whatever! burn! rate! we! observe! in! the! issuance! year! is! somehow!
11!
exogenous!and!could!not!have!been!be!altered!by!the!firm.!What!Table!2!suggests!is!
that!many!firms!have!a!good!deal!of!control!over!their!burn!rates,!and!more!often!
than!not!squeezed!firms!cut!their!burn!rates!rather!than!raise!capital.,
!
2.3,Capital,Market,Conditions,and,the,Decision,to,Issue,
,
In! the! previous! section! we! show! that! although! the! majority! of! debt! and!
equity! issuers! appear! to! be! running! out! of! cash,! this! is! also! true! of! thousands! of!
firms!that!do!not!issue!equity!or!debt,!but!instead!cut!spending.!In!this!section!we!
ask!whether!capital!market!conditions!can!explain!why!some!firms!that!are!running!
out!of!cash!issue!and!why!others!do!not.!The!liquidity!squeeze!framework!does!not!
predict!this!effect,!but!the!precautionary!motives!framework!does.!
To!study!differences!between!squeezed!issuers!and!squeezed!nonUissuers!we!
perform! a! propensity! score! matching! exercise.! We! randomly! select! 1,000! issuers!
and! match! them! to! 1,000! nonUissuers.! We! match! issuers! to! nonUissuers! on! cashU
quarters,! cash,! burn! rates,! leverage,! sales,! total! assets,! PP&E,! and! marketUtoUbook.!
We! then! test! whether! capital! market! or! issuance! conditions! are! significantly!
different!for!issuers!as!compared!to!the!matchedUsample!of!nonUissuers.!We!repeat!
this! exercise! 250! times! (randomly! selecting! 1,000! issuers! and! matching! them! to!
nonUissuers),!and!report!the!average!values!from!the!250!tests.!
!
We!measure!issuance!conditions!for!debt!issues!with!the!default!spread,!the!
rate! on! Baa! corporate! bonds,! the! Chicago! Fed’s! Financial! Conditions! Index,! net!
government!bond!issues,!and!the!first!principal!component!of!these!four!variables,!
which!we!refer!to!as!the!debt!market!factor.!All!of!these!variables!are!evaluated!in!
12!
the! quarter! preceding! the! issuance! quarter.! Summary! statistics! for! these! variables!
are!provided!in!Table!3.!
!
The! default! spread! is! the! difference! between! the! Moody’s! seasoned! Baa!
corporate!bond!yield!and!Moody’s!seasoned!Aaa!corporate!bond!yield.!According!to!
the! Chicago! Fed! its! Financial! Conditions! Index! “…measures! risk,! liquidity! and!
leverage!in!money!markets!and!debt!and!equity!markets!as!well!as!in!the!traditional!
and! “shadow”! banking! systems.! Positive! values! of! the! index! indicate! financial!
conditions! that! are! tighter! than! average,! while! negative! values! indicate! financial!
conditions!that!are!looser!than!average”.!!
Greenwood,! Hanson! and! Stein! (2010)! and! Graham,! Leary,! and! Roberts!
(2014)!provide!evidence!that!government!bond!issues!affect!corporate!bond!issues.!
They! show! that! when! the! government! issues! more! debt,! firms! tend! to! issue! less!
debt,!as!the!government!bonds!absorb!the!supply!of!capital.!More!government!bond!
issues!are!therefore!associated!with!worse!issuance!conditions.!
We!measure!issuance!conditions!for!equity!with!firmUlevel!stock!returns!over!
the! quarter! preceding! the! issue! quarter,! the! increase! in! short! interest! over! the!
previous! quarter,! the! returns! of! the! Wilshire! US! SmallUCap! Price! Index! for! the!
previous!quarter,!the!returns!of!the!S&P!500!index!for!the!previous!quarter,!and!the!
first! principal! component! of! the! SmallUCap! and! S&P! 500! return! indices,! which! we!
refer! to! as! the! equity! market! factor.!3!The! S&P! 500! is! perhaps! the! most! common!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
3!A!good!deal!of!literature!suggests!that!short!sellers!are!informed!investors,!who!are!able!to!
identify!overvalued!stocks!(see!Dechow!et!al.!(2001),!Desai!et!al.!(2002),!Asquith!et!al.!(2005),!and!
Duan,!Hu,!and!McLean!(2010))!
13!
measure! of! market! returns,! however! most! equity! issuers! are! smaller! firms,! so! the!
smallUcap!index!is!also!relevant!for!our!purposes.!
Figure! 1! shows! that! firms’! financial! liquidity! does! not! vary! with! capital!
market! conditions,! i.e.,! firms! are! just! as! likely! to! face! a! liquidity! squeeze! in! a! bad!
market!as!in!a!good!market.!This!lends!credence!to!the!precautionary!framework.!If!
firms!face!a!reasonable!chance!of!getting!squeezed!in!a!down!market,!then!it!makes!
sense! to! issue! and! build! financial! liquidity! in! up! markets.! Figure! 1! shows! that! the!
median! cashUquarters! and! the! median! cashUquarters! among! firms! in! the! lowest!
quintile! of! cashUquarters! are! virtually! the! same! in! “Bad”,! “Normal”,! and! “Good”!
market! conditions,! where! market! conditions! are! defined! using! debt! market! and!
equity!market!factors!terciles.!
!
The! results! for! our! propensity! matching! analyses! are! reported! in! Table! 4.!
Panel! A! reports! the! results! for! debt,! while! Panel! B! reports! the! results! for! equity.!
With!respect!to!debt!issues,!Panel!A!shows!that!the!issuer!and!nonUissuer!matched!
samples! are! similar! along! all! of! the! dimensions! that! we! consider,! i.e.,! there! are! no!
significant! differences! in! any! of! the! variables! that! we! match! on,! and! the! overall!
likelihood!pUvalue!of!the!two!samples!being!different!fails!to!reject!the!null.!!!
The!results!in!Panel!A!show!that!all!five!of!the!issuance!conditions!variables!
reflect! better! issuance! conditions! for! issuers! than! nonUissuers.! As! examples,! the!
market!rate!on!Baa!bonds!is!0.688%!lower!for!the!issuer!sample!as!compared!to!the!
nonUissuer! sample.! The! spread! between! Baa! and! Aaa! bonds! is! 0.072%! lower.! The!
spread!has!a!mean!value!of!about!1%,!so!this!is!a!7.2%!difference.!The!Chicago!Fed’s!
financial! conditions! index! is! lower! by! U0.070,! or! 21%,! for! issuers! as! compared! to!
14!
nonUissuers! (lower! index! values! reflect! better! issuance! conditions).! So! although!
nearUterm!funding!needs!appear!to!be!an!important!consideration!for!debt!issuers,!
time!series!variations!in!the!cost!of!borrowing!are!important!as!well.!
As! with! debt! issuers,! the! equity! issuer! sample! and! matched! sample! of! nonU
issuers! are! similar! along! all! of! the! dimensions! that! we! consider.! All! five! of! the!
issuance! conditions! variables! are! statistically! significant,! revealing! significantly!
better! issuance! conditions! for! issuers! as! compared! to! nonUissuers.! As! examples,!
firmUlevel!stock!returns!in!the!quarter!preceding!the!issue!were!on!average!14.6%!
for! issuers! versus! 4.6%! for! nonUissuers.! Short! interest! increases! by! 0.23%! for!
issuers,!but!falls!by!U0.15%!for!nonUissuers!in!the!quarter!preceding!the!issue.!!
!
Overall! the! results! in! Table! 2! show! that! liquidity! squeezes! alone! are! not! a!
sufficient! explanation! for! why! firms! issue,! as! a! large! number! of! firms! facing!
squeezes!do!not!issue.!Table!4!shows!that!what!distinguishes!squeezed!issuers!from!
squeezed! nonUissuers! are! capital! market! conditions.! If! issuance! conditions! are!
favorable,!then!firms!with!nearUterm!capital!needs!issue!debt!or!equity.!!If!issuance!
conditions!are!unfavorable,!firms!cut!spending.!These!results!are!consistent!with!the!
precautionary!motives!framework,!but!not!the!liquidity!squeeze!framework.!!
!
2.2.,Do,Issuers,Typically,Face,Liquidity,Squeezes?,
!
In!this!next!section!we!ask!whether!issuers!typically!face!liquidity!squeezes.!
A!similar!question!is!posed!in!Huang!and!Ritter!(2015)!and!Deangelo,!Deangelo!and!
Stulz! (2010).! We! therefore! compare! and! contrast! our! findings! to! the! findings! in!
those!papers.!!
15!
Panel!A!of!Table!5!shows!that!among!debt!issuers,!only!38%!of!issuers!faced!
liquidity! squeezes,! whereas! 62%! did! not.! The! median! nonUsqueezed! firm! has! a!
negative!burn!rate!(its!cash!flow!from!operations!exceeds!its!capital!expenditures)!
and!a!cashUtoUassets!ratio!of!0.042.!Similarly,!Huang!and!Ritter!(2015)!find!that!43%!
of!net!debt!issuers!face!liquidity!squeezes.!A!net!debt!issuer!in!Huang!and!Ritter!is!a!
firm! with! debt! issues! less! debt! repurchases! in! excess! of! 5%! of! assets.! As! we! later!
show,!most!debt!issue!proceeds!are!used!to!repurchase!existing!debt,!so!debt!issuers!
and!net!debt!issuers!can!be!different!firms.!Despite!this!difference,!we!both!find!that!
about!40%!of!debt!issuers!face!liquidity!squeezes.!
!
Panel! B! repeats! the! analysis! for! equity! issuers.! We! find! that! 49%! of! equity!
issuers! are! squeezed! and! that! 51%! are! not.! Among! the! nonUsqueezed! issuers,! the!
average!firm!has!a!burn!rate!of!0.004!and!cashUtoUassets!of!0.335,!so!these!firms!are!
clearly! not! facing! a! liquidity! squeeze.! Similarly,! Huang! and! Ritter! (2015)! find! that!
42%! of! net! equity! issuers! face! exUante! liquidity! squeezes.! Deangelo,! Deangelo! and!
Stulz!(2010)!find!that!40%!of!firms!making!seasoned!public!offerings!(their!sample!
does!not!include!private!placements!as!ours!does)!face!liquidity!squeezes,!if!capital!
expenditures! are! assumed! to! remain! the! same! in! the! years! before! and! after! the!
issue.! So! there! is! a! consensus! that! the! majority! of! issuing! firms! do! not! face!
impending!liquidity!squeezes,!at!least!if!liquidity!squeezes!are!measured!exUante.!
!
!
3.,What,Determines,Issue,Size?,
In!this!section!of!the!paper!we!try!to!explain!the!size!of!debt!and!equity!issues!
conditional! on! having! issued.! We! measure! issue! size! as! issue! proceeds! scaled! by!
16!
lagged!assets.!As!before,!we!define!issuers!as!quarterly!observations!with!proceeds!
from!either!debt!or!equity!issues!that!exceed!5%!of!total!assets.!We!then!separately!
sort!debt!and!equity!issues!into!two!groups!based!on!the!sample!medians.!We!define!
large!issues!as!those!above!the!sample!median,!and!small!issues!as!those!below!the!
sample!median.!!
The!two!frameworks!in!this!paper!make!very!different!predictions!regarding!
issue! size.! The! liquidity! squeeze! framework! predicts! that! large! issues! are! made! to!
fund! large! investments! and! expenses.! Hence,! firms! with! greater! capital! needs! will!
make! larger! issues! and! promptly! spend! the! proceeds.! The! precautionary! motives!
framework! predicts! that! firms! will! make! larger! issues! when! issuance! costs! are!
lower!and!then!use!the!proceeds!to!build!financial!slack.!Financial!slack!can!be!built!
by!saving!cash!and!by!refinancing!to!lengthen!the!maturity!of!existing!debt.,
,
3.1.,Logit,Regressions,
!
We! first! explore! the! differences! between! large! and! small! issuers! via! logit!
regressions.! The! regression! sample! is! limited! to! either! debt! or! equity! issuers.! The!
dependent!variable!in!these!regressions!is!equal!to!1!if!the!firm!made!a!large!issue!
and! zero! if! the! firm! made! a! small! issue.! We! estimate! the! regressions! for! debt! and!
equity!issues!separately.!We!cluster!our!standard!errors!at!the!firm!level.!Clustering!
on!time!produces!similar!tUstats.!For!comparability!we!divide!all!the!variables!in!the!
logit!regressions!by!their!standard!deviations.!
Our! regressions! include! several! firmUlevel! variables.! These! include! marketU
toUbook,!size!(log!of!assets),!leverage,!PP&E!scaled!by!total!assets,a!dummy!variable!
17!
equal! to! one! if! the! firm! has! a! negative! burn! rate! (the! firm! builds! cash)! and! zero!
otherwise,! and! the! number! of! cashUquarters.!4!! For! firms! with! negative! burn! rates,!
we!set!the!cashUquarters!variable!equal!to!zero,!and!the!effect!of!the!negative!burn!
rate! is! captured! in! the! negative! burn! dummy.! If! liquidity! squeezes! determine!
issuance!size,!then!the!number!of!cash!quarters!and!the!negative!burn!rate!dummy!
should!both!be!important!determinants!of!issuance!size.!!
In!addition!to!saving!cash!another!way!that!firms!can!build!financial!liquidity!
is!by!issuing!longUterm!debt!(more!than!5!years)!or!equity!and!using!the!proceeds!to!
retire!shortUterm!debt.!We!therefore!include!a!shortUterm!debt!variable,!which!is!the!
debt!maturing!in!2!to!5!years!scaled!by!total!debt.!We!exclude!debt!maturing!in!the!
current! year,! as! it! is! more! like! nearUterm! spending! and! could! contribute! to! a!
liquidity! squeeze.! If! firms! issue! for! precautionary! reasons,! then! a! higher! value! of!
shortUterm!debt!should!be!associated!with!larger!issues,!i.e.,!firms!make!large!issues!
and!use!the!proceeds!to!pay!down!shortUterm!debt.!For!many!firms!the!data!needed!
to! make! the! shortUterm! debt! variable! are! missing.! To! keep! our! sample! as! large! as!
possible!we!assign!missing!values!a!value!of!zero,!and!include!a!dummy!equal!to!1!if!
the!shortUterm!debt!variable!is!missing,!and!zero!otherwise.!!
!
We!include!one!of!the!capital!market!conditions!variables!that!are!included!in!
Table!5!in!each!regression.!So!for!debt!issues!we!include!the!default!spread,!the!rate!
on! Baa! corporate! bonds,! the! Chicago! Fed’s! Financial! Conditions! Index,! and! net!
government!bond!issues.!For!equity!issues!we!include!the!lagged!market!returns!of!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
4 !The!
regressions! therefore! include! all! of! the! typical! variables! in! capital! structure!
regressions! (e.g.,! Rajan! and! Zingales,! 1995,! and! Baker! and! Wurgler,! 2002).! The! regressions! also!
include!industry!fixed!effects.!
18!
the!small!cap!index,!the!S&P!500,!the!firm’s!lagged!stock!returns,!and!lagged!change!
in!short!interest.!!
!
!
3.1.2,Debt,Issue,Results,
!
We! report! the! results! for! debt! issuers! in! Table! 6.! The! first! regression! does!
not!include!a!market!conditions!variable,!while!the!next!five!regressions!include!one!
of!the!market!conditions!variables.!Throughout!all!of!six!regressions!in!Table!6!the!
cashUquarters! variable! is! positive! and! marginally! significant.! Hence,! a! firm! with!
more!cash!relative!to!its!burn!rate!is!more,likely!to!make!a!large!issue!and!if!a!firm!is!
facing! a! liquidity! squeeze! it! is! less, likely! to! make! a! large! issue.! Moreover,! the!
negative! burn! rate! dummy! coefficient! is! positive! and! significant! in! all! of! the!
regressions.! Hence,! firms! that! generate! enough! cash! flow! to! cover! all! of! their!
spending!and!investments!are!more!likely!to!make!large!debt!issues,!and!firms!that!
are!burning!cash!are!less!likely!to!make!large!debt!issues.!These!findings!contradict!
the!idea!that!firms!make!large!debt!issues!to!cover!liquidity!squeezes.!Instead,!large!
issues!are!more!common!among!firms!that!are!not!squeezed!and!among!firms!that!
generate!free!cash!flow.!!
!
The!size!and!age!coefficients!are!both!negative!and!significant,!showing!that!
younger!and!smaller!firms!are!more!likely!to!make!larger!issues.!Hadlock!and!Pierce!
(2010)!argue!that!small!firms!and!young!firms!are!the!most!likely!to!face!financial!
constraints.!So!consistent!with!precautionary!motives,!these!firms!should!raise!large!
amounts! of! capital! when! they! can.! Smaller! and! younger! firms! are! also! more!
speculative,! and! thus! may! find! it! harder! and! more! costly! to! raise! capital! during!
19!
downturns! (see! Bernanke! and! Gertler! (1996),! Baker! and! Wurgler! (2006),!
Greenwood!and!Hanson!(2013)).!Hence,!smaller!and!younger!firms!ought!to!make!
larger!issues!during!good!times,!which!is!what!we!find.!
The! shortUterm! debt! coefficient! is! positive! and! significant! in! all! of! the!
specifications.! Firms! therefore! make! larger! issues! if! a! greater! percentage! of! their!
debt!is!maturing!in!2!to!5!years.!This!suggests!that!firms!use!longerUterm!debt!issues!
to! retire! these! soonUtoUbe! maturing! debt! issues,! consistent! with! precautionary!
motives.!We!explore!this!idea!more!in!the!next!section.!
The!next!five!regressions!in!Table!6!show!that!the!likelihood!of!a!large!debt!
issue! relative! to! a! small! debt! issue! increases! when! the! cost! of! issuance! is! lower.!
Large! debt! issues! are! significantly! more! likely! when! the! default! spread! is! lower,!
when!the!rate!on!Baa!bonds!is!lower,!and!when!financial!conditions,!as!measured!by!
the!Chicago!Fed’s!Index,!are!better.!Large!debt!issues!are!also!more!likely!when!the!
federal!government!is!issuing!less!debt.!With!respect!to!economic!significance,!a!one!
standard! deviation! increase! in! the! debt! factor,! which! is! the! first! principal!
component! of! the! other! four! costs! of! debt! issuance! variables,! increases! the!
likelihood!of!a!large!debt!issue!by!more!than!2%.!The!unconditional!probability!of!a!
large!debt!issue!is!50%,!so!a!2%!increase!is!a!sizeable!effect.!!
!
3.1.3.,Equity,Issue,Results,
!
Table!7!reports!the!results!for!equity!issues.!As!with!debt!issuers,!the!results!
in! Table! 7! contradict! the! idea! that! size! of! equity! issues! are! explained! by! liquidity!
squeezes.!In!all!six!regressions!the!cashUquarters!coefficient!is!insignificant.!Hence,!
20!
firms!that!face!liquidity!squeezes!are!not!more!likely!to!make!larger!equity!issues.!
The!negative!burn!rate!coefficient!is!negative!in!all!specifications!but!only!significant!
in! two! of! the! specifications,! so! there! is! some! weak! evidence! that! large! issuers! are!
more!likely!to!be!burning!cash!than!small!issuers.!!
Large! equity! issuers! also! have! higher! marketUtoUbook! ratios;! in! the! first!
regression! a! one! standard! deviation! increase! in! marketUtoUbook! increases! the!
likelihood! of! a! large! equity! issue! by! 6%.! This! could! reflect! larger! growth!
opportunities!for!firms!making!large!issues,!but!it!could!also!reflect!larger!issues!for!
precautionary! cash! needs.! We! study! how! the! issue! proceeds! are! spent! in! the! next!
section.!
!
As! with! debt! issues! the! size! and! age! coefficients! are! both! negative! and!
significant,!showing!that!younger!and!smaller!firms!are!more!likely!to!make!larger!
issues.! As! we! mention! earlier,! Hadlock! and! Pierce! (2010)! argue! that! small! young!
firms! are! the! most! likely! to! face! financial! constraints.! So! consistent! with!
precautionary! motives,! these! firms! raise! large! amounts! of! capital! via! equity! issues!
when!they!can.!!
!
The! results! in! Table! 7! show! that! large! equity! issues! are! associated! with!
better!issuance!conditions!as!compared!to!large!issues.!All!five!of!the!equity!market!
conditions!variables!are!positive!and!statistically!significant.!The!results!show!that!
both! higher! stock! returns! and! greater! increases! in! short! interest! increase! the!
likelihood!of!a!large!equity!issue!relative!to!a!small!one.!Similarly,!higher!returns!for!
both!the!smallUcap!index!and!S&P!500!increase!the!likelihood!of!a!large!equity!issue!
relative! to! a! small! one.! As! for! economic! significance,! a! one! standard! deviation!
21!
increase!in!the!cost!of!issuance!index!(the!first!principal!component!of!the!S&P!500!
and! smallUcap! index! returns)! leads! to! a! 2.3%! increase! in! the! likelihood! of! a! large!
equity! issue! relative! to! small! one.! The! unconditional! probability! of! a! large! issue! is!
50%,!so!this!is!a!meaningful!effect.!These!effects!are!all!in!addition!to!the!marketUtoU
book!effects,!which!can!also!reflect!the!cost!of!issuing!equity!(see!Baker!and!Wurgler!
(2002)).! Taken! in! their! entirety,! the! results! suggest! that!capital! market! conditions!
have!a!first!order!effect!on!issuance!size,!whereas!liquidity!squeezes!do!not!play!a!
significant!role.!
!
!
3.2.,Use,of,Proceeds!
!
The!results!in!the!previous!section!show!that!capital!market!conditions!have!
a! firstUorder! effect! on! issuance! size,! whereas! liquidity! squeezes! have! virtually! no!
effect.! Moreover,! we! find! that! small! firms,! young! firms,! and! firms! with! strong!
growth!opportunities,!make!larger!issues.!These!are!precisely!the!firms!that!ought!
to! be! building! financial! liquidity! so! as! to! not! have! to! miss! a! valuable! growth!
opportunity! due! to! costly! external! finance.! ! In! this! section! of! the! paper! we! try! to!
better!verify!these!conclusions!by!studying!how!firms!use!their!issuance!proceeds.!
The! precautionary! motive! for! finance! predicts! that! the! bulk! of! large! issues! will! be!
used! to! build! financial! liquidity,! both! by! saving! cash! and! retiring! soonUtoUbe!
maturing!debt.!
!
In!this!section!of!the!paper!we!also!study!bonds!issues.!Compustat!cash!flow!
from!longUterm!debt!issues!contain!not!only!bond!issues,!but!also!leases,!mortgages,!
22!
and! in! some! cases! are! reported! net! of! debt! repurchases.5!That! is,! even! though! in!
Compustat!there!is!a!separate!line!item!for!debt!repurchases,!some!firms!lump!them!
in! with! debt! issues,! and! report! a! net! issuance! number! in! the! cash! flow! from! longU
term!debt!issues!line!item.!Hence,!bond!issue!data!gives!us!a!clean!look!at!what!firms!
do! with! their! bond! issuance! proceeds.! In! the! previous! tables! the! results! for! debt!
issues!and!bond!issues!are!very!similar,!so!for!brevity!we!only!report!the!result!for!
debt! issues.! However! here! we! find! some! differences,! so! we! report! both! sets! of!
results.!
,
3.2.1.,Use,of,Proceeds:,Debt,Issues!
In!Table!8!we!study!how!debt!issuance!proceeds!are!spent.!Panel!A!reports!
the!issuance!amount!and!the!various!uses!of!the!proceeds!scaled!by!lagged!assets.!
Panel! B! reports! the! use! of! proceeds! amounts! scaled! by! the! issue! amount.! The!
various!uses!of!proceeds!include!the!cash!burn!rate,!repurchases,!and!cash!savings.!
For!debt!issues!we!report!both!debt!repurchases!and!net!equity!repurchases!(equity!
repurchases!–!equity!issues).!If!net!equity!repurchases!is!negative!(net!equity!issues!
are! positive)! then! the! percentage! for! use! of! debt! proceeds! is! negative.! Likewise,!
when!we!study!the!use!of!equity!issue!proceeds!we!use!net!debt!repurchases.!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
5!As!an!example,!consider!MGP!Ingredients,!Inc.!(gvkey!14891).!Between!the!third!and!fourth!
fiscal! quarter! of! fiscal! year! 2011,! the! company! originates! a! waterUcooling! system! capital! lease!
obligation!worth!$7.36M,!which!corresponds!to!5.5%!of!the!previous!fiscal!quarter!total!assets.!This!
is!the!only!longUterm!debt!issue!the!company!performs!and!this!exact!amount!($7.36M)!is!reported!in!
the! proceeds! from! longUterm! debt! issues! on! the! statement! of! cash! flow.! This! example! is! not!
uncommon.! In! our! sample,! 44%! of! firms! with! a! positive! value! for! longUterm! debt! report! a! positive!
value! for! capitalized! lease! obligations! (item! dclo),! and! for! these! firms,! capitalized! lease! obligations!
represent!on!average!34%!of!longUterm!debt.
!
23!
!
Panel!B!shows!that!there!are!significant!differences!in!the!size!of!debt!issues.!!
The! average! large! debt! issue! is! 0.322,! while! the! average! small! debt! issue! is! 0.078.!
For! both! large! and! small! debt! issues,! about! 63%! of! the! proceeds! are! used! to!
refinance!existing!debt,!25%!are!used!up!in!the!burn!rate,!and!the!rest!are!saved!as!
cash.!Hence,!when!firms!make!large!debt!issues!it!is!usually!because!they!have!large!
amounts! of! debt! to! repurchase,! with! near! term! spending! needs! being! of! second!
order!importance.!!!
!
In! Figure! 2! we! plot! the! issue! amounts! and! the! various! uses! of! proceeds! for!
the!8!quarters!before,!the!quarter!of,!and!the!8!quarters!after!the!issuance!quarter.!
Panel!B!shows!that!the!average!large!debt!issue!is!32%!of!assets,!whereas!in!the!8!
quarters!before!and!after!debt!issues!average!about!10%!of!assets!for!these!firms.!
We! see! that! in! the! 8! quarters! before! and! in! the! 8! quarters! after! the! issue! quarter!
debt!repurchases!are!about!10%!of!assets,!so!it!appears!in!most!quarters!these!firms!
are! also! rolling! over! debt.! In! the! large! issue! quarter! repurchases! spike! to! 18.8%,!
change!in!cash!spikes!to!3.2%,!and!the!burn!rate!increases!to!8.5%.!So!larger!debt!
issues!mainly!fund!larger!repurchases,!with!smaller!amounts!going!to!spending!and!
then!cash.!!
!
3.2.2.,Use,of,Proceeds:,Bond,Issues!
!
Table! 9! studies! bond! issues! with! maturity! of! five! years! or! more! instead! of!
debt!issues.!The!average!large!bond!issue!is!0.355,!whereas!the!average!small!bond!
issue!is!0.088.!The!allocation!of!the!proceeds!is!different!for!large!and!small!issues.!
With! small! bond! issues,! 73%! of! the! proceeds! are! used! for! repurchases,! 22%! are!
24!
saved!as!cash,!and!12%!are!taken!up!in!burn!rate.!With!larger!bond!issues,!53%!of!
the! proceeds! used! to! refinance,! 20%! are! used! in! burn! rate,! and! 29%! are! saved! as!
cash.!Hence,!when!we!examine!bond!issues,!cash!savings!appear!to!be!an!important!
motive!for!larger!bond!issues.!We!don’t!find!this!effect!with!debt!issues,!but!as!we!
explain! earlier! debt! issues! can! include! mortgages! and! leases,! so! pure! bond! issues!
data!paint!a!cleaner!picture!of!how!bond!issue!proceeds!are!used.!!
!
Figure!3!plots!the!bond!issue!amounts!and!the!various!uses!of!proceeds!for!
the!8!quarters!before,!the!quarter!of,!and!the!8!quarters!after!the!issuance!quarter.!
In!Panel!B!we!see!that!for!large!bond!issues!cash!increases!by!an!amount!equal!to!
12.4%!of!assets!in!the!issuance!quarter.!There!is!a!small!amount!of!spending!in!the!
two! quarters! that! follow,! as! cash! declines! by! U0.013! and! U0.005! in! the! two!
subsequent! quarters,! however! afterwards! the! changes! in! cash! are! positive.! Hence,!
consistent!with!precautionary!motives!the!cash!built!with!bond!issues!is!truly!saved;!
it!is!apparently!not!earmarked!for!planned!spending.!
!
3.2.3.,Extending,Maturity,
!
Table! 9! shows! that! about! half! of! the! proceeds! from! large! bond! issues! are!
used!to!refinance!existing!debt.!Here!we!ask!whether!this!results!in!lengthening!the!
maturity! of! the! firm’s! debt,! i.e.,! using! the! proceeds! from! longUterm! debt! issues! to!
refinance! debt! that! is! maturing! in! the! next! 5! years.! Lengthening! maturity! is!
consistent!with!precautionary!motives!because!it!increases!financial!liquidity.!In!the!
mediumUterm!lengthening!maturity!has!a!similar!effect!as!does!saving!cash;!issuing!
25!
to! bonds! to! pay! down! debt! results! in! a! higher! cash! level! than! does! using! existing!
cash!to!pay!down!debt.!!
Compustat!reports!separate!annual!balance!sheet!items!(our!other!analyses!
rely!on!quarterly!data)!for!the!amount!of!debt!due!in!years!1,!2,!3,!4,!and!5.!Note!that!
if!the!firm!does!nothing,!then!the!amount!of!debt!due!in!year!5!at!time!t!becomes!the!
amount! of! debt! due! in! year! 4! at! time! t+1:! Dt,5! =! Dt+1,4.! Hence,! if! we! want! to! know!
whether! the! firm! repurchased! some! of! Dt,5! then! we! subtract! debt! due! in! year! 5! at!
time! t! from! debt! due! in! year! 4! at! time! t+1:! If! Dt+1,4! U! Dt,! 5! <! 0,! then! the! firm! has!
repurchased!debt!due!in!year!5.!We!perform!this!exercise!for!Dt,!5,!Dt,!4,!Dt,!3,!and!Dt,!2!
and! then! sum! up! the! differences.! The! resulting! sum! shows! the! amount! of! debt!
maturing!between!years!2!and!5!that!was!retired!in!year!t.!
!
Figure! 5! reports! our! findings.! Panel! A! shows! that! small! bond! issuers! have!
shortUterm! debt! to! assets! (the! sum! of! Dt,2,! Dt,3,! Dt,4,! and! Dt,5)! of! 0.122,! while! large!
bond!issuers!have!shortUterm!debt!to!assets!of!0.172.!Hence,!large!bond!issuers!have!
more! debt! coming! due! than! small! bond! issuers.! Panel! B! shows! that! large! bond!
issuers! reduce! their! shortUterm! debt! by! U0.055,! which! is! about! oneUthird! of! their!
total! shortUterm! debt.! Small! debt! issuers! also! reduce! their! shortUterm! debt,! by! U
0.022,!which!is!about!oneUsixth!of!their!total!shortUterm!debt.!Hence,!the!reduction!
of!shortUterm!debt!is!of!more!importance!for!large!debt!issuers,!which!is!consistent!
with!precautionary!motives!as!a!determinant!of!issuance!size.!This!is!also!consistent!
with!the!results!in!Table!6,!which!shows!that!firms!more!shortUterm!debt!are!more!
likely!to!make!larger!bond!issues.!
!
26!
3.2.4.,Use,of,Proceeds:,Equity,Issues!
!
Table! 10! reports! the! findings! for! equity! issues.! Here! we! observe! larger!
differences! in! issue! size! as! compared! to! longUterm! debt! and! bonds.! Large! equity!
issues! average! 0.829,! while! small! equity! issues! average! 0.106.! We! also! find! more!
striking! contrasts! in! how! the! proceeds! are! used.! Smaller! equity! issues! are! more!
likely!to!spend;!74%!of!the!proceeds!are!used!up!in!the!burn!rate,!whereas!the!rest!
are!mainly!saved!as!cash.!Larger!equity!issues!are!more!motivated!by!precautionary!
cash!needs;!approximately!39%!of!the!proceeds!are!used!up!in!the!burn!rate,!while!
62%!are!saved!as!cash.!Hence,!firms!make!smaller!equity!issues!to!fund!nearUterm!
liquidity!needs,!and!make!larger!equity!issues!to!build!cash.!
!
McLean!(2011)!and!Kim!and!Weisbach!(2008)!both!find!that!firms!save!more!
than!$0.40!per!$1!of!issuance!proceeds!as!cash.!Here!we!show!that!the!savings!effect!
varies! with! issue! size.! The! savings! effect! is! greater! for! large! issues! and! lesser! for!
small!issues.!With!small!issues!the!savings!rate!is!28%,!whereas!with!large!issues!it!
is! 62%.! Taken! together,! the! two! groups! average! 45%,! similar! to! McLean! and! Kim!
and!Weisbach.!
!
The! equity! issuance! results! are! also! displayed! in! Figure! 4.! ! Table! 10! shows!
that! most! of! large! equity! issues! are! saved! as! cash.! Figure! 4! shows! that! the! cash!
savings!are!not!spent!over!the!subsequent!8!quarters.!!Instead,!we!see!that!there!are!
small!increases!in!cash!during!each!of!the!subsequent!8!quarters.!!
Deangelo,!Deangelo,!and!Stulz!(2010)!report!that!firms!spend!some!of!their!
equity!issuance!proceeds!in!years!2!and!3!after!the!issuance.!Figure!4!in!our!paper!
shows!that!the!median!issuer!does!not!spend!its!proceeds!during!the!two!years!after!
27!
the! issue.! Different! samples! could! explain! the! difference! in! findings.! Deangelo,!
Deangelo,!and!Stulz!(2010)!study!4,291!seasoned!public!offerings!during!the!period!
1973U2001.! We! study! 8,389! quarterly! equity! issues! that! exceed! 5%! of! assets!
(includes!both!private!placements!and!seasoned!public!offerings)!during!the!period!
1984U2014.! Another! factor! is! that! McLean! (2011)! shows! that! cash! savings! from!
equity!issues!were!higher!during!the!later!years!in!our!sample,!especially!relative!to!
the!1970s.!
!
4.!Conclusion!
!
In!this!paper!we!compare!the!effects!of!liquidity!squeezes!and!precautionary!
motives!on!debt!and!equity!issue!decisions.!Unlike!most!papers,!we!separately!study!
the! initial! decision! to! issue,! and! conditional! on! issuing,! the! size! of! the! issue.! The!
results!show!that!liquidity!squeezes!matter!for!the!initial!decision!to!issue,!but!have!
no! effect! on! the! size! of! the! issue,! whereas! the! precautionary! motives! framework!
matters!for!both!the!decision!to!issue!and!the!size!of!the!issue.!
We! show! that! there! are! a! large! number! of! firms! that! appear! to! be! facing!
liquidity! squeezes! that! do! not! raise! capital,! but! instead! cut! spending.! We! find! that!
capital! market! conditions! can! determine! why! some! firms! issue! and! why! other! cut!
spending.! When! conditions! are! favorable,! firms! raise! capital.! When! conditions! are!
poor,! firms! cut! spending.! The! liquidity! squeeze! framework! does! not! predict! this!
effect,!but!it!is!consistent!with!the!precautionary!motives!framework.!
!
With! respect! to! issue! size,! we! find! that! nearUterm! funding! needs! are!
irrelevant,! i.e.,! the! amount! of! capital! that! a! firm! raises! is! uncorrelated! with! the!
28!
amount!of!capital!that!it!needs!in!the!nearUterm.!The!likelihood!of!a!debt!large!issue!
relative! to! a! small! issue! increases! when! borrowing! costs! are! lower.! Similarly,! the!
likelihood!of!a!large!equity!issuer!relative!to!a!small!one!increases!when!stock!prices!
are!higher.!Large!debt!and!bond!issues!are!primarily!used!to!refinance!existing!debt,!
thereby! extending! maturity,! and! to! build! cash.! The! majority! of! large! equity! issues!
are!used!to!build!cash.!These!findings!are!broadly!consistent!with!the!precautionary!
motives!framework!and!contradict!the!idea!that!nearUterm!funding!needs!determine!
how!much!capital!a!firm!raises.!
!
!
29!
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Polk,! Christopher,! and! Paola! Sapienza,! 2009,! The! stock! market! and! corporate!
investment:! A! test! of! the! catering! theory,! Review,of,Financial,Studies,! 22(1),!
187U217.!
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Rajan,! Raghuram! G.,! and! Luigi! Zingales,! 1995,! What! Do! We! Know! About! Capital!
Structure?! Some! Evidence! from! International! Data,! Journal! of! Finance! 50,!
1421–1460.!
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Ritter,! Jay,! 1991,! The! longUrun! performance! of! initial! public! offerings,! Journal! of!
Finance!46,!3U27.!!
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Rosenbaum,! P.R.! and! Rubin,! D.B.! (1985),! "Constructing! a! Control! Group! Using!
Multivariate!Matched!Sampling!Methods!that!Incorporate!the!Propensity!Score",!
The!American!Statistician!39(1),!33U38.!
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Spiess,!D.!K.,!Affleck–Graves,!J.,!1995.!Underperformance!in!long–run!stock!returns!
following! seasoned! equity! offerings.! Journal! of! Financial! Economics! 38,! 243–
267.!
!
Stein,! Jeremy,! 1996,! Rational! capital! budgeting! in! an! irrational! world,! Journal, of,
Business!69,!429U55.!
!
Warusawitharana,! Masa! and! Toni! Whited,! 2015,! Equity! Market! Misvaluation,!
Financing,!and!Investment,!Forthcoming,!Review,of,Financial,Studies.!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
33!
Figure!1:!Financial!Liquidity!and!Capital!Market!Conditions!!
0
1
2
3
4
This!figure!shows!the!median!cashUquarters!for!all!firms!that!burn!cash!and!for!the!firms!that!burn!
cash! and! are! in! the! lowest! quintile! of! cashUquarters! among! firms! that! burn! cash.! A! firm’s! cashU
quarters!is!the!ratio!of!its!current!cashUholdings!to!its!mean!quarterly!burn!rate,!measured!over!the!
last!4!quarters.!CashUquarters!reflect!how!many!quarters!a!firm’s!cash!would!last!given!its!current!
burn!rate.!Debt!and!Equity!market!conditions!are!indices!that!reflect!the!ease!with!which!a!firm!can!
issue!debt!or!equity.!The!indices!and!their!components!are!defined!in!Table!4.!!
!
Panel!A:!Debt!Market!Conditions!and!Median!CashGQuarters!
!
Bad
Normal
Sample Median
Good
Lowest Quintile Median
!
0
1
2
3
4
!
Panel!B:!Equity!Market!Conditions!and!Median!CashGQuarters!
!
Bad
Normal
Sample Median
Good
Lowest Quintile Median
!
34!
Figure!2:!Large!and!Small!Debt!Issuers!
!
This! figure! reports! the! average! amount! of! proceeds! and! uses! of! the! proceeds! for! large! and! small!
debt!issuers.!The!quantities!are!reported!for!the!eight!quarters!before,!the!quarter!of,!and!the!eight!
quarters!after!the!issue!quarter.!All!of!the!variables!are!scaled!by!the!beginning!of!the!quarter!total!
assets!(item!atq).!
!
!
Panel!A:!Small!Debt!Issues!
.12
Debt Issue
Net Equity Rep.
Debt Rep.
Burn Rate
Change in cash
.09
.06
.03
0
−8
−6
−4
−2
0
2
4
6
8
quarter
!
!
Panel!B:!Large!Debt!Issues!
.4
Debt Issue
Net Equity Rep.
Debt Rep.
Burn Rate
Change in cash
.3
.2
.1
0
−8
−6
−4
−2
0
2
4
6
8
quarter
!
!
35!
!
Figure!3:!Large!and!Small!Bond!Issues!
!
This!figure!reports!the!average!amount!of!proceeds!and!uses!of!the!proceeds!for!large!and!small!bond!
issuers.! The! quantities! are! reported! for! the! eight! quarters! before,! the! quarter! of,! and! the! eight!
quarters!after!the!issue!quarter.!All!of!the!variables!are!scaled!by!the!beginning!of!the!quarter!total!
assets!(item!atq).!
!
Panel!A:!Small!Bond!Issues!
.09
Bond Issue
Net Equity Rep.
Debt Rep.
Burn Rate
Change in cash
.06
.03
0
−8
−6
−4
−2
0
2
4
6
8
quarter
!
Panel!B:!Large!Bond!Issues!
.4
Bond Issue
Net Equity Rep.
Debt Rep.
Burn Rate
Change in cash
.3
.2
.1
0
−8
−6
−4
−2
0
2
4
6
8
quarter
!
!
36!
!
Figure!4:!Large!and!Small!Equity!Issuers!
!
This! figure! reports! the! average! amount! of! proceeds! and! uses! of! the! proceeds! for! large! and! small!
equity! issuers.! The! differences! are! reported! for! the! eight! quarters! before,! the! quarter! of,! and! the!
eight!quarters!after!the!issue!quarter.!All!of!the!variables!are!scaled!by!the!beginning!of!the!quarter!
total!assets!(item!atq).!
!
Panel!A:!Small!Equity!Issues!
.2
Equity Issue
Equity Rep.
Net Debt Rep.
Burn Rate
Change in cash
.15
.1
.05
0
−8
−6
−4
−2
0
2
4
6
8
quarter
!
!
!
Panel!B:!Large!Equity!Issues!
Equity Issue
Equity Rep.
Net Debt Rep.
Burn Rate
Change in cash
.8
.6
.4
.2
0
−8
−6
−4
−2
0
2
4
6
8
quarter
!
!
!
37!
!
!
Figure!5:!Existing!Short!Term!and!Bond!Issues!
!
This!figure!reports!the!shortUterm!debt!(the!sum!of!Dt,2,!Dt,3,!Dt,4,!and!Dt,5)!over!assets!!for!small!and!
large!bond!issuers!in!the!quarter!preceding!the!issue!episode!(Panel!A).!Panel!B!reports!the!change!in!
shortUterm!debt!over!assets!for!small!and!large!bond!issuers!following!the!issue!episode.!
!
Panel!A:!ShortGTerm!Debt!
.18
.15
.12
.09
.06
.03
0
Low
Large
Short Term Debt
95% C.I.
!
!
Panel!B:!Change!in!ShortGTerm!Debt!
!
!
0
−.02
−.04
−.06
Low
Large
Short Term Debt (Change)
38!
95% C.I.
!
Table!1:!Summary!Statistics!
!
This!table!reports!the!mean,!standard!deviation,!25%!percentile,!50%!percentile,!75%!percentile,!and!
number! of! available! observations! for! the! variables! used! in! the! empirical! analysis.! We! exclude! nonU
U.S.! firms,! firms! that! are! not! listed! on! one! of! the! three! major! stock! exchanges! (AMEX,! NYSE,! and!
NASDAQ),! financial! firms! (SIC! 6000U6999),! and! utilities! (SIC! 4000U4949).! We! also! exclude!
observations! with! less! than! 8! quarters! of! reported! values! for! the! quarter! closing! price! of! common!
equity!(item!prccq).!Otherwise!noted,!all!of!the!variables!are!scaled!by!the!beginning!of!the!quarter!
total! assets! (item! atq).! Compustat! reports! some! variables! as! yearUtoUdate! proceeds.! As! an! example,!
equity!issuance!!(item!sstky)!in!quarter!2!is!the!sum!of!the!equity!issues!from!quarters!1!and!2.!The!
quarter! 3! equity! issuance! is! the! sum! of! equity! issues! from! quarters! 1,! 2,! and! 3.! To! get! the! actual!
quarterly! equity! issuance! in! quarter! 3,! we! subtract! the! quarter! 2! value! of! sstky! from! the! quarter! 3!
value.! We! follow! the! same! procedure! for! debt! issuance! (item! dltisy),! equity! and! debt! repurchases!
(items! prstkcy! and! dltry),! capital! expenditures! (item! capxy),! and! acquisitions! (item! aqcy).! Bond,
Issuance! is! the! value! of! total! corporate! debt! issued! in! a! given! quarter! with! maturity! grater! than! 5!
years.! We! obtain! bond! issuance! data! from! SDC! and! the! Mergent! Fixed! Income! Securities! Database!
(FISD).! We! define! equity! and! debt! issues! as! a! quarterly! observation! for! which! the! total! proceeds!
within!a!quarter!are!greater!than!5%!of!lagged!assets.!Equity!issues!and!debt!issues!are!therefore!set!
equal! to! zero! if! the! issue! amount! scaled! by! lagged! assets! is! less! than! 0.05.! ΔCash! is! the! quarterly!
change!in!cash!and!marketable!securities!(item!cheq).!Cash,Flows!is!the!sum!of!net!income!(item!niq)!
with! depreciation! and! amortization! (item! dpq).! Investment! is! the! sum! of! quarterly! capital!
expenditures!and!acquisitions.!Burn,Rate!is!the!difference!between!Investment!and!Cash!Flows.!Cash#
Quarter! is! the! average! Burn, Rate, calculated! over! 4! quarters! tU3,! tU2,! tU1,! and! t! divided! by! cash!
holdings!in!quarter!t.!Market#to#Book!is!the!log!of!the!market!value!of!equity!(item!prccq!times!item!
cshoq)!scaled!by!the!book!value!of!equity!(item!ceqq).!If!the!book!value!of!equity!is!negative,!we!set!
the!marketUtoUbook!value!to!missing.!PPE!is!net!property,!plant,!and!equipment!(ppentq).!Sales!is!the!
log!value!of!total!sales!(item!saleq)!expressed!in!2009!dollars!using!the!implicit!price!deflator!for!the!
U.S.! GDP.! Age! is! the! number! of! quarters! the! firms! has! been! in! the! Compustat! database.! Leverage!
equals!the!quarter!t!total!liabilities!!(item!ltq)!divided!by!the!quarter!t!total!assets!(item!atq).!Short,
Maturity,is!the!ratio!of!shortUterm!debt!(the!sum!of!items!DD2,!DD3,!DD4,!and!DD5)!over!total!longU
term! debt! (item! dltt).! Cash,Holdings! is! the! quarterly! value! in! cash! and! marketable! securities! (item!
cheq).! Assets! is! the! log! value! of! total! book! assets! (item! atq)! expressed! in! 2009! dollars! using! the!
implicit!price!deflator!for!the!U.S.!GDP.!The!data!are!at!a!quarterly!frequency!over!the!period!1984q1U
2014q4.!All!the!variables!are!winsorized!at!the!top!and!bottom!0.5%.!!
!
!
!
39!
Table!1!(Continued)!
!
!
Variable!
mean!
sd!
p25!
p50!
p75!
Equity!Issuance!
0.328!
0.290!
0.094!
0.203!
0.497!
8,733!
Equity!Repurchase!
0.004!
0.014!
0.000!
0.000!
0.000!
269,134!
Debt!Issuance!
0.185!
0.163!
0.075!
0.12!
0.225!
29,090!
Debt!Repurchase!
0.022!
0.062!
0.000!
0.001!
0.012!
277,291!
Bond!Issuance!
0.155!
0.208!
0.037!
0.084!
0.183!
6,360!
ΔCash!
Cash!Flows!
0.006!
0.095!
U0.017!
0.000!
0.017!
291,831!
0.011!
0.066!
0.007!
0.023!
0.037!
264,406!
Investment!
0.023!
0.041!
0.005!
0.011!
0.024!
290,282!
Burn!Rate!
0.014!
0.082!
U0.020!
U0.006!
0.018!
262,914!
CashUQuarter!
22.393!
71.541!
1.043!
3.926!
12.523!
104,629!
Market/Book!(log)!
3.173!
4.328!
1.254!
2.010!
3.390!
282,113!
PPE!
0.277!
0.227!
0.100!
0.215!
0.387!
291,534!
Sales!(log)!
4.275!
2.116!
2.903!
4.274!
5.691!
289,247!
Age!
57.109!
34.477!
29.000!
49.000!
77.000!
293,730!
Leverage!
0.472!
0.250!
0.287!
0.463!
0.620!
292,787!
Short!Maturity!
0.642!
0.354!
0.331!
0.672!
1!
149,847!
Cash!Holdings!
0.190!
0.233!
0.026!
0.095!
0.270!
291,987!
Assets!(log)!
5.680!
1.938!
4.288!
5.563!
6.980!
292,894!
40!
Count!
Table!2:!Do!Firms!Facing!Liquidity!Squeezes!Raise!Capital?!
!
This!table!reports!the!results!of!the!liquidity!squeeze!analysis.!We!only!consider!firms!that!report!a!
nonUmissing! value! for! the! average! burn! rate! during! the! preceding! four! quarters! before! an! issue!
quarter.!A!squeezed!firm!is!a!firm!with!positive!cashUquarters!less!than!or!equal!to!4.!We!have!four!
categories.! Total! is! the! entire! sample! of! liquidity! squeezed! firms.! No, Issue, is! the! subsample! of!
liquidity! squeezed! firms! that! do! not! issue.! ! Debt, is! the! subsample! of! liquidity! squeezed! firms! that!
issue!debt.!Equity,is!the!subsample!of!liquidity!squeezed!firms!that!issue!equity.!!In!Panel!A!and!for!
each!category,!we!report!the!number!of!firms,!the!median!burn!rate,!the!median!cashUtoUassets!ratio,!
and! the! median! cashUquarters.! In! Panel! B! we! only! consider! No,Issue,firms! that! do! not! issue! for! an!
entire!year.!In!the!first!row,!we!report!the!number!of!these!firms!that!do!not!issue!in!quarter!t!and!in!
the! subsequent! three! quarters! (t+1,! t+2,! and! t+3).! ! In! the! second! row! we! report! the! average! burn!
rates!in!the!quarter!during!which!they!do!not!issue!(t),!the!mean!of!the!4!pervious!quarters,!and!three!
quarters! after! (t+1,! t+2,! and! t+3).! In! the! last! row,! we! report! the! decrease! in! the! average! burn! rate!
relative!to!the!mean!of!the!4!pervious!quarters!preceding!quarter!t.!
!
!
Panel!A:!Distribution!of!Squeezed!Firms!
Category!
Observations!
Median!!
Median!!
Cash!Quarter!
!
!
Burn!Rate!
Cash!Holdings!
!Median!
Total!
51,755!(100%)!
0.037!
0.029!
1.056!
No!Issue!
37,585!(73%)!
0.035!
0.030!
1.158!
Debt!
10,246!(20%)!
0.031!
0.018!
0.701!
Equity!
3,924!(7%)!
0.138!
0.141!
1.181!
Panel!B:!Spending!Patterns!Among!LiquidityGSqueezed!NonGIssuers!!
Category!
Mean!(tG1!to!tG4)!
t!
t+1!
t+2!
t+3!
37,585!
37,585!
22,631!
13,582!
7,766!
Average!Burn!Rate!
0.060!
0.025!
0.022!
0.020!
0.021!
Change!in!Burn!Rate!!
100%!
58%!
63%!
67%!
65%!
Observations!
41!
Table!3:!Market!Conditions!Variables!
!
This!table!reports!the!mean,!standard!deviation,!25%!percentile,!50%!percentile,!75%!percentile,!and!
number!of!available!observations!for!the!market!conditions!variables!used!in!the!empirical!analyses.!
NFCI! is! the! Chicago! Fed’s! Financial! Conditions! Index.! Baa! is! the! Moody’s! seasoned! Baa! corporate!
bond!yield.!Credit!Spread!is!the!difference!between!the!Moody’s!seasoned!Baa!corporate!bond!yield!
and!Moody’s!seasoned!Aaa!corporate!bond!yield.!Fed!Debt!is!net!government!bond!issues.!Small!Cap!
is!the!return!of!the!Wilshire!US!SmallUCap!Price!Index.!SP500!is!the!return!of!the!S&P!500!index.!Debt!
Market! Factor! is! the! first! principal! component! of! NFCI,! Baa,! Credit! Spread,! and! Fed! Debt.! Equity!
Market!Factor!is!the!first!principal!component!of!Small!Cap!and!SP500.!Stock!price!is!the!quarterly!
change! in! the! price! of! common! equity.! ΔShort! Interest! is! the! percentage! change! in! short! selling!
activity.! In! each! quarter,! we! evaluate! the! average! proportion! of! shares! sold! short! each! month! and!
define!ΔShort!Interest,as!the!difference!in!the!average!proportion!between!two!consecutive!quarters.!
!
!
Variable!
mean!
sd!
p25!
p50!
p75!
count!
NFCI!
U0.307!
0.550!
U0.675!
U0.440!
U0.105!
124!
Baa!(%)!
8.081!
2.201!
6.345!
7.940!
9.385!
124!
Credit!Spread!(%)!
1.010!
0.396!
0.750!
0.920!
1.190!
124!
Fed!Debt!(%)!
0.730!
2.518!
U0.354!
0.709!
1.902!
123!
Small!Cap!(%)!
2.991!
8.456!
U0.753!
3.826!
7.954!
124!
SP500!(%)!
2.387!
8.077!
U1.163!
3.405!
7.150!
124!
Debt!Factor!
U0.007!
1.534!
U0.699!
0.314!
1.056!
122!
Equity!Factor!
U0.003!
1.417!
U0.586!
0.153!
0.887!
123!
Stock!Price!(%)!
3.908!
31.15!
U12.509!
0.927!
15.385!
293,330!
ΔShort!Interest!(%)!
0.011!
1.348!
U0.331!
U0.026!
0.291!
163,129!
!
!
!
!
42!
!
!
Table!4:!Propensity!Score!Analysis!
!
This! table! reports! a! comparison! of! debt! and! equity! market! conditions! for! liquidity! squeezed! firms!
that!issue!and!liquidity!squeezed!firms!that!do!not!issue!in!a!given!quarter.!We!consider!debt!(equity)!
issuers!that!are!liquidity!squeezed.!We!define!a!debt!(equity)!issuer!to!be!liquidity!squeezed!if!it!has!a!
cashUquarter!value!in!the!quarter!preceding!the!issuance!episode!below!the!median!cashUquarter!of!
debt!(equity)!issuers.!!We!randomly!match!debt!(equity)!issuers!with!liquidity!squeezed!firms!that!do!
not!issue!equity!or!debt!but!have!similar!characteristics.!In!Panel!A!(Panel!B)!we!report!the!results!
for!debt!(equity)!issuers.!Column!Issuers!reports!the!average!value!for!market!timing!variables!and!
control!variables!for!issuers,!while!Column!Non,Issuers!reports!the!average!for!value!market!timing!
variables! and! control! variables! for! nonUissuers.! Column! Difference, reports! the! difference! in! the!
market! timing! and! control! variables.! For! the! market! timing! variables,! Column! S., E., reports! the!
standard!error!of!the!difference!evaluated!following!Abadie!and!Imbens!(2006)!and!the!column!t#stat,
the! corresponding! tUstatistics.! For! the! control! variables,! Column!p#value,reports,the! pUvalue! for! the!
difference! in! control! variables! across! groups! and! Column! %,Bias,the! standardized! percentage! bias!
suggested! by! Rosenmaum! and! Rubin! (1985).! At! the! bottom! of! each! panel,! we! report! the! number!
trials! and! of! observations! and! the! likelihoodUratio! test! of! the! joint! insignificance! of! all! the! control!
variables.! Market#to#Book! controls! for! growth! opportunities.! PPE! controls! for! tangibility.! Age! and!
Total,Assets! control! for! the! severity! of! financial! constraints! (Hadlock! and! Pierce! (2010)).! Leverage!
and! Cash, Holdings! control! for! capital! structure.! Sales! controls! for! revenues.! Burn, Rate! and! Cash#
Quarter! control! for! liquidity! needs.! Table! 1! reports! the! definitions! of! the! control! variables,! while!
Table!4!reports!the!definitions!of!the!market!timing!variables.!
!
Panel!A:!Debt!Issuers!
Issuers!
Non!Issuers!
Difference!
S.!E.!
tUstat!
0.221!
U0.104!
0.325!
0.074!
4.415!
NFCI!
U0.341!
U0.271!
U0.070!
0.026!
U2.723!
Baa!(%)!
7.565!
8.254!
U0.688!
0.080!
U8.643!
Credit!(%)!
0.960!
1.032!
U0.072!
0.020!
U3.663!
Fed!Debt!(%)!
0.489!
0.797!
U0.307!
0.123!
U2.511!
!
!
!
!
Debt!Market!Factor!
!
Control!Variables!
!
!
Matched!Sample!
Issuers!
Non!Issuers!
Difference!
pUvalue!
%!Bias!
MarketUtoUBook!
2.883!
3.244!
U0.361!
0.234!
9.079!
PPE!
0.479!
0.471!
0.008!
0.550!
3.104!
Age!
54.125!
53.898!
0.228!
0.597!
2.548!
Total!Assets!(log)!
6.060!
6.014!
0.047!
0.516!
3.329!
Leverage!
0.576!
0.580!
U0.004!
0.535!
3.127!
Cash!Holdings!
0.041!
0.041!
U0.001!
0.673!
1.496!
Sales!(log)!
4.495!
4.445!
0.050!
0.506!
3.385!
Burn!Rate!
0.052!
0.055!
U0.002!
0.515!
3.833!
CashUQuarters!
1.061!
1.075!
U0.014!
0.620!
2.216!
Observations:!!250!random!samples!with!N=1,000;!LikelihoodUratio!pUvalue:!0.58!
!
!
!
43!
!
Table!4:!Propensity!Score!Analysis!(Continued)!
!
!
Panel!B:!Equity!Issuers!
!!
Issuers!
Non!Issuers!
Difference!
S.!E.!
tUstat!
Equity!Market!Factor!
0.180!
0.012!
0.168!
0.065!
2.570!
Small!Cap!(%)!
4.072!
3.069!
1.003!
0.390!
2.572!
SP500!(%)!
3.409!
2.453!
0.955!
0.373!
2.561!
Stock!Price!(%)!
14.641!
4.576!
10.065!
2.096!
4.809!
Short!Interest!(%)!
0.225!
U0.150!
0.375!
0.099!
3.805!
!
!
Matched!Sample!
!
!
!
Issuers!
Non!Issuers!
Difference!
pUvalue!
%!Bias!
MarketUtoUBook!
7.790!
7.888!
U0.098!
0.631!
3.508!
PPE!
0.342!
0.348!
U0.006!
0.554!
3.287!
Age!
44.132!
42.453!
1.679!
0.235!
5.868!
Total!Assets!(log)!
4.302!
4.284!
0.018!
0.640!
2.249!
Leverage!
0.499!
0.510!
U0.011!
0.374!
5.578!
Cash!Holdings!
0.219!
0.204!
0.015!
0.300!
6.882!
Sales!(log)!
2.092!
2.062!
0.030!
0.658!
2.318!
Burn!Rate!
0.136!
0.130!
0.007!
0.406!
5.527!
CashUQuarters!
1.509!
1.465!
0.043!
0.418!
4.204!
!
Control!Variables!
Observations:!!250!random!samples!with!N=1,000;!LikelihoodUratio!pUvalue:!0.33!
!
!
!
44!
Table!5:!Do!Most!Issuers!Face!Liquidity!Squeezes?!
!
This!table!reports!on!the!likelihood!that!debt!and!equity!issuers!face!liquidity!squeezes!at!the!time!of!
issuance.! We! report! the! results! for! debt! issues! in! Panel! A! and! equity! issues! in! Panel! B.! The! first!
column! in! each! panel! reports! the! number! of! issuers.! ! The! second! column! reports! the! number! and!
percentage!of!issuers!that!are!not!squeezed.!NonUsqueezed!firms!have!a!negative!burn!rate,!i.e.,!the!
number!of!issuers!that!were!on!average!building!cash!over!the!last!four!quarters,!or!a!cash!quarters!
that!exceed!4.!The!final!column!reports!the!number!and!percentage!of!issuers!that!are!squeezed!(i.e.,!
with! a! positive! cashUquarters! less! than! or! equal! to! 4).! ! The! last! two! rows! in! each! panel! report! the!
median!levels!of!cash!holdings!and!burn!rates!within!the!various!groups!of!issuers.!
!
!
Panel!A:!Debt!Issuers!
Debt!Issues!
NonGSqueezed!!
Squeezed!
Number!
Cash/Assets!
Burn!Rate!
28,343!
0.029!
0.002!
17,470!(62%)!
0.042!
U0.008!
10,870!(38%)!
0.018!
0.032!
!Number!
Cash/Assets!
Burn!Rate!
Equity!Issues!
8,389!
0.225!
0.059!
!
!
!
Panel!B:!Equity!Issuers!
NonGSqueezed!
4,245!(51%)!
0.335!
0.004!
45!
Squeezed!
4,141!(49%)!
0.138!
0.137!
!
Table!6:!Logit!Regressions!for!Debt!Issues!
#
#
Assets#
#
PPE#
#
MarketEtoEBook#
0.033***#
(0.009)#
0.021**#
(0.003)#
0.006*#
(0.010)#
0.006#
(0.006)#
E0.020***#
(0.008)#
E0.041***#
(0.008)#
E0.039***#
(0.007)#
0.035***#
Baseline!
(0.006)#
0.033***#
(0.009)#
0.020**#
(0.003)#
0.006*#
(0.010)#
0.006#
(0.006)#
E0.019***#
(0.008)#
E0.040***#
(0.008)#
E0.040***#
(0.007)#
0.034***#
Credit!!
(0.006)#
0.025***#
(0.009)#
0.025***#
(0.003)#
0.006*#
(0.010)#
0.010#
(0.007)#
E0.037***#
(0.009)#
E0.049***#
(0.008)#
E0.034***#
(0.007)#
0.027***#
Baa!
(0.006)#
0.033***#
(0.009)#
0.020**#
(0.003)#
0.006*#
(0.010)#
0.007#
(0.006)#
E0.020***#
(0.008)#
E0.040***#
(0.008)#
E0.040***#
(0.007)#
0.033***#
FCI!
(0.017)#
0.107***#
(0.006)#
0.034***#
(0.009)#
0.021**#
(0.003)#
0.006*#
(0.010)#
0.006#
(0.006)#
E0.018***#
(0.008)#
E0.040***#
(0.008)#
E0.040***#
(0.007)#
0.034***#
Fed.!Debt!
(0.017)#
0.106***#
(0.006)#
0.033***#
(0.009)#
0.021**#
(0.003)#
0.006*#
(0.010)#
0.007#
(0.006)#
E0.019***#
(0.008)#
E0.040***#
(0.008)#
E0.040***#
(0.007)#
0.033***#
Debt!Factor!
This#table#reports#the#results#from#logit#regressions#for#debt#issues.##We#only#consider#small#and#large#debt#issues.#The#dependent#variable#takes#
value#of#1#if#there#is#a#large#debt#issues#in#a#given#quarter#and#zero#otherwise.#The#coefficient#is#the#marginal#effect#of#the#independent#variable#
on#the#probability#of#a#large#debt#issue#next#quarter#multiplied#by#the#independent#variable#standard#deviation.#Table#1#reports#the#definitions#
of#the#control#variables,#while#Table#4#reports#the#definitions#of#the#market#timing#variables#used#in#each#regression.#In#columns#1,#we#do#not#
add#any#market#timing#variables#to#the#set#of#regressors.#The#sample#includes#observations#over#the#period#1984q1E2013q4.#Regressions#also#
include# industry# and# time# fixed# effects.# # Robust# standard# errors,# reported# in# parentheses,# are# computed# by# clustering# at# the# firm# level# in#
columns#1E3#and#at#the#time#level#in#columns#4E8.#*#Significant#at#10%;#**#Significant#at#5%;#***#Significant#at#1%.#
#
#
Short#Term#Debt#
(0.006)#
(0.017)#
0.107***#
#
Dummy#Burn#
#
CashEQuarter#
#
Leverage#
#
Age#
#
(0.017)#
0.089***#
0.020***#
(0.017)#
E0.011***#
0.107***#
E0.018***#
(0.017)#
E0.061***#
0.106***#
E0.010**#
Dummy#Short#
#
#
#
Yes#
(0.004)#
No#
Yes#
No#
0.022#
26,416#
(0.004)#
No#
0.021#
26,416#
Yes#
No#
0.021#
26,416#
(0.004)#
#
Yes#
No#
0.021#
26,416#
Yes#
#
Industry#FE#
Yes#
0.021#
26,416#
(0.007)#
Time#FE#
0.021#
26,416#
Yes#
Observations#
(0.004)#
Pseudo#R2#
46#
#
Table!7:!Logit!Regressions!for!Equity!Issues!
#
Baseline!
Stock!Return!
Short!Sales!
Small!Cap.!
SP500!
Equity!Factor!
This#table#reports#the#results#from#logit#regressions#for#equity#issues.#We#only#consider#small#and#large#equity#issues.#The#dependent#variable#
takes#value#of#1#if#there#is#a#large#equity#issue#in#a#given#quarter#and#zero#otherwise.#The#coefficient#is#the#marginal#effect#of#the#independent#
variable#on#the#probability#of#a#large#equity#issue#next#quarter#multiplied#by#the#independent#variable#standard#deviation.#Table#1#reports#the#
definition#of#the#control#variables,#while#Table#4#reports#the#definition#of#the#market#timing#variables#used#in#each#regression.#In#columns#1,#we#
do#not#add#any#market#timing#variables#to#the#set#of#regressors.#The#sample#includes#observations#over#the#period#1984q1E2013q4.#Regressions#
also#include#industry#and#time#fixed#effects.##Robust#standard#errors,#reported#in#parentheses,#are#computed#by#clustering#at#the#firm#level#in#
columns#1E3#and#at#the#time#level#in#columns#4E8.#*#Significant#at#10%;#**#Significant#at#5%;#***#Significant#at#1%.#
#
#
(0.008)#
E0.042***#
0.058***#
(0.012)#
(0.008)#
E0.042***#
E0.095***#
0.058***#
(0.012)#
(0.008)#
E0.042***#
E0.095***#
0.058***#
(0.012)#
(0.013)#
E0.046**#
E0.095***#
0.072***#
(0.019)#
(0.008)#
E0.031**#
E0.124***#
0.050***#
(0.015)#
(0.008)#
E0.036***#
E0.107***#
0.060***#
(0.012)#
#
MarketEtoEBook#
PPE#
E0.099***#
#
#
(0.011)#
E0.037***#
Assets#
E0.001#
(0.010)#
(0.011)#
E0.037***#
E0.027#
(0.006)#
(0.010)#
E0.001#
(0.018)#
(0.010)#
(0.011)#
E0.037***#
E0.026#
(0.006)#
(0.012)#
0.023**#
(0.015)#
(0.018)#
E0.045**#
E0.001#
(0.018)#
0.070**#
(0.012)#
E0.023*#
0.003#
E0.027#
(0.006)#
(0.012)#
0.023**#
(0.032)#
(0.010)#
(0.012)#
E0.059*#
(0.009)#
(0.018)#
0.070**#
0.023***#
#
(0.011)#
E0.039***#
E0.004#
(0.031)#
(0.012)#
0.023**#
(0.032)#
(0.010)#
Leverage#
(0.007)#
0.031*#
0.070**#
0.023***#
E0.036***#
#
E0.001#
E0.046**#
(0.017)#
(0.032)#
(0.010)#
CashEQuarter#
E0.021#
(0.007)#
(0.021)#
0.125***#
0.023***#
E0.036***#
#
(0.019)#
(0.013)#
0.029**#
(0.047)#
(0.007)#
(0.010)#
Dummy#Burn#
0.020*#
0.091**#
0.026***#
(0.007)#
No#
Yes#
E0.036***#
#
(0.012)#
(0.036)#
(0.007)#
No#
Yes#
(0.014)#
Short#Term#Debt#
0.065**#
0.040***#
(0.009)#
No#
Yes#
E0.028**#
#
#
(0.033)#
(0.007)#
No#
Yes#
6,747#
(0.014)#
Dummy#Short#
#
No#
Yes#
6,747#
0.110#
E0.056***#
#
Yes#
6,747#
0.110#
(0.011)#
#
Yes#
3,347#
0.110#
E0.050***#
Industry#FE#
5,559#
0.198#
Age#
Time#FE#
6,747#
0.145#
#
Observations#
0.132#
#
Pseudo#R2#
47#
Table&10:&Key&Accounting&Ratios&at&Issuance&(Equity&Issues)&
!
This!table!reports!a!comparison!of!key!accounting!ratios!during!the!issuance!quarter!for!small!and!
large! equity! issues.! Panel! A! reports! the! results! relative! to! the! firm’s! beginning! of! the! quarter! total!
assets,! while! Panel! B! reports! the! results! in! percentage! of! the! equity! issue.! Issue%Size%is! the! average!
value!of!the!issue!proceeds!during!the!issuance!quarter.!Burn%Rate%is!the!average!burn!rate!during!the!
issuance!quarter.!Equity!Rep.%is!the!average!of!equity!repurchases!during!the!issuance!quarter!(item!
prstkcy).! Net! Debt! Rep.% is! the! average! of! debt! repurchases! net! of! debt! issues! during! the! issuance!
quarter! (item! dltry% minus! item! dltisy).! ΔCash! is! the! quarterly! change! in! cash! and! marketable!
securities!(item!cheq)!during!the!issuance!quarter.!Otherwise!noted,!all!of!the!variables!are!scaled!by!
the! beginning! of! the! quarter! total! assets! (item! atq).! All! the! variables! are! winsorized! at! the! top! and!
bottom!0.5%.!
!
!
Panel&A:&Levels&
!!
Equity!Issue!
Equity!Rep.!
Net!Debt!Rep.!!
Burn!Rate!
ΔCash!
Small!
0.106!
0.006!
R0.009!
0.078!
0.039!
Large!
0.829!
0.005!
R0.004!
0.282!
0.577!
Large!R!Small!
0.723!
R0.001!
0.005!
0.203!
0.538!
p_value!
0.000!
0.000!
0.104!
0.000!
0.000!
!
!
!
!
Panel&B:&Percentages&
!!
!
!
!
!
!
!
Equity!Issue!
Equity!Rep.!
Net!Debt!Rep.!
Burn!Rate!
ΔCash!
Small!
100%!
6%!
R8%!
74%!
28%!
Large!
100%!
2%!
R1%!
39%!
62%!
Large!R!Small!
!!
R4%!
7%!
R34%!
34%!
p_value!
!!
0.000!
0.000!
0.000!
0.000!
!
49!
Table&9:&Key&Accounting&Ratios&at&Issuance&(Bonds&Issues)&
!
This!table!reports!a!comparison!of!key!accounting!ratios!during!the!issuance!quarter!for!small!and!
large! bond! issues.! We! include! bonds! with! maturity! of! 5! years! or! more.! Panel! A! reports! the! results!
relative! to! the! firm’s! beginning! of! the! quarter! total! assets,! while! Panel! B! reports! the! results! in!
percentage!of!the!bond!issue.!Issue%Size%is!the!average!value!of!the!issue!proceeds!during!the!issuance!
quarter.!Burn%Rate%is!the!average!burn!rate!during!the!issuance!quarter.!Debt!Rep.%is!the!average!of!
debt! repurchases! during! the! issuance! quarter! (item! dltry).! Net! Equity! Rep.%is! the! average! of! equity!
repurchases!net!of!equity!issues!during!the!issuance!quarter!(item!prstkcy%minus!item!sstky).!ΔCash!is!
the! quarterly! change! in! cash! and! marketable! securities! (item! cheq)! during! the! issuance! quarter.!
Otherwise!noted,!all!of!the!variables!are!scaled!by!the!beginning!of!the!quarter!total!assets!(item!atq).!
All!the!variables!are!winsorized!at!the!top!and!bottom!0.5%.!
!
!
!
Panel&A:&Levels!
!!
Bond!Issue!
Debt!Rep.!
Net!Equity!Rep.!!
Burn!Rate!
ΔCash!
Small!
0.088!
0.065!
0.003!
0.012!
0.020!
Large!
0.355!
0.147!
Q0.007!
0.073!
0.124!
LargeQ!Small!
0.266!
0.082!
Q0.010!
0.061!
0.105!
p_value!
0.000!
0.000!
0.000!
0.000!
0.000!
!
!
!
!
!!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
&
!
!
!
!
!
Panel&B:&Percentages!
!
!
Bond!Issue!
Debt!Rep.!
Net!Equity!Rep.!
Burn!Rate!
ΔCash!
Small!
100%!
73%!
4%!
12%!
22%!
Large!
100%!
53%!
Q1%!
20%!
29%!
LargeQ!Small!
!!
Q20%!
Q5%!
8%!
7%!
p_value!
!!
0.000!
0.000!
0.000!
0.000!
&
48!
Table&10:&Key&Accounting&Ratios&at&Issuance&(Equity&Issues)&
!
This!table!reports!a!comparison!of!key!accounting!ratios!during!the!issuance!quarter!for!small!and!
large! equity! issues.! Panel! A! reports! the! results! relative! to! the! firm’s! beginning! of! the! quarter! total!
assets,! while! Panel! B! reports! the! results! in! percentage! of! the! equity! issue.! Issue%Size%is! the! average!
value!of!the!issue!proceeds!during!the!issuance!quarter.!Burn%Rate%is!the!average!burn!rate!during!the!
issuance!quarter.!Equity!Rep.%is!the!average!of!equity!repurchases!during!the!issuance!quarter!(item!
prstkcy).! Net! Debt! Rep.% is! the! average! of! debt! repurchases! net! of! debt! issues! during! the! issuance!
quarter! (item! dltry% minus! item! dltisy).! ΔCash! is! the! quarterly! change! in! cash! and! marketable!
securities!(item!cheq)!during!the!issuance!quarter.!Otherwise!noted,!all!of!the!variables!are!scaled!by!
the! beginning! of! the! quarter! total! assets! (item! atq).! All! the! variables! are! winsorized! at! the! top! and!
bottom!0.5%.!
!
!
Panel&A:&Levels&
!!
Equity!Issue!
Equity!Rep.!
Net!Debt!Rep.!!
Burn!Rate!
ΔCash!
Small!
0.106!
0.006!
Q0.009!
0.078!
0.039!
Large!
0.829!
0.005!
Q0.004!
0.282!
0.577!
Large!Q!Small!
0.723!
Q0.001!
0.005!
0.203!
0.538!
p_value!
0.000!
0.000!
0.104!
0.000!
0.000!
!
!
!
!
Panel&B:&Percentages&
!!
!
!
!
!
!
!
Equity!Issue!
Equity!Rep.!
Net!Debt!Rep.!
Burn!Rate!
ΔCash!
Small!
100%!
6%!
Q8%!
74%!
28%!
Large!
100%!
2%!
Q1%!
39%!
62%!
Large!Q!Small!
!!
Q4%!
7%!
Q34%!
34%!
p_value!
!!
0.000!
0.000!
0.000!
0.000!
!
49!