Cash Holding, Rollover Risk and M&A

We develop a unified framework to connect cash holding, debt maturity and mergers and acquisitions. We provide empirical support for four internally consistent predictions: i) equity and debt values of highly distressed firms are more sensitive to cash reserve than those of healthy firms; ii) the relation between equity-(debt-)cash sensitivities and debt maturity is negative (positive), particularly in distressed firms short of cash; iii) acquirers with low debt maturity prefer equity payment to cash payment in mergers and acquisitions; and iv) cash payment triggers positive abnormal stock returns mainly among high-maturity acquirers