Do Advance Payments Matter? The Relation Between Deferred Revenue and the Cost of Debt
This study examines how deferred revenue influences the cost of debt. Using credit spreads as a proxy for the cost of debt, we find that deferred revenue increases the cost of debt. However, when we consider the impact that an increase in deferred revenue has on the debt-to-asset ratio, we find that the relation between deferred revenue and the cost of debt is contingent on whether the increase in deferred revenue has a favorable or adverse effect on the debt-to-asset ratio. An increase in deferred revenue is associated with a decrease in the cost of debt if the deferred revenue increase favorably affects the debt-to-asset ratio. In contrast, an increase in deferred revenue is associated with an increase in the cost of debt if it adversely affects the debt-to-asset ratio. We also find that sales changes and inventory changes moderate the effect that deferred revenue has on the cost of debt. When sales and deferred revenue are both increasing, there is a higher cost of debt. In contrast, when inventory and deferred revenue are both increasing, there is a lower cost of debt. The study provides insights into when it is advantageous or not for managers to set contractual arrangements for receiving payments before revenue is earned if a firm has plans to issue debt
Year of publication: |
2020
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Authors: | Barber, Russell |
Other Persons: | Hollie, Dana (contributor) ; Yu, Shaokun Carol (contributor) |
Publisher: |
[2020]: [S.l.] : SSRN |
Description of contents: | Abstract [papers.ssrn.com] |
Saved in:
Extent: | 1 Online-Ressource |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 15, 2020 erstellt Volltext nicht verfügbar |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012828201
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