Rollover risk is the risk that a firm may not be able to refinance its debt when it becomes due. We investigate whether managers' resource adjustment decisions are influenced by rollover risk and find that cost stickiness is decreasing in rollover risk. Additionally, the negative relationship between rollover risk and cost stickiness is stronger for firms with higher financial constraints and fewer financing sources. These results suggest that, when faced with elevated rollover risk, managers are willing to forego the benefits from a sticky cost behaviour. Finally, the use of an alternative firm-specific measure of cost stickiness corroborates our main finding.
This paper studies the role of accounting quality in accessing credit lines for liquidity purposes. While the literature suggests that firms should meet liquidity needs through credit lines and not cash holdings, some firms rely on cash instead because of limited access to credit markets. I find low accruals quality firms use less credit lines and hold more cash. This relationship is more pronounced when firms are financially distressed, when credit markets are tightening, and during the 2007-2008 financial crisis. The spread and the use of cash flow covenants in credit lines are two channels through which accruals quality affects liquidity choice.
Prior literature has documented intra-industry information transfers from earnings announcements and management forecasts. The underlying cause of these observations is that a firm's earnings announcements or forecasts contain information about earnings prospects of other firms in the same industry. While a majority of papers in this line of literature focuses on peer firms' stock movements in response to the earnings reports or forecasts of the announcing or forecasting firms, respectively, we examine specifically whether investors' reaction to information transfers from management earnings forecasts is rational. For nonforecasting firms, we find that investors consistently underreact to information transfers from peer firms' management forecasts. Further, the underreaction is corrected when nonforecasting firms subsequently make earnings announcements. For late forecasting firms, the underreaction is only partly corrected when they release earnings forecasts subsequent to early forecasters, presumably due to the credibility concerns of management forecasts. The underreaction is further corrected when late forecasting firms later announce earnings. Finally, we partition forecast news based on whether the news implies industry commonalities or competitive shifts. We find evidence of underreaction to both the news containing industry commonalities and that containing competitive shifts.
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