[Show abstract][Hide abstract] ABSTRACT: This paper develops and empirically confirms a theory that explains why media content predicts takeover outcomes. It shows why target shareholders pay attention to the news, despite the risk of distorted reporting. To test the model's prediction, this paper constructs a novel empirical measure that quantifies text-based media content pertaining to the ac-quirer. It then estimates the intertemporal link between this measure and the outcome of takeovers. Consistent with theory, positive media content about the acquirer predicts takeover success. Relative to other predictors proposed in the literature, the media mea-sure is the most important explanatory variable in terms of significance and goodness of fit. Using text-based media content, this paper thus fills a major gap in our understanding of takeovers. web: www.buehlmaier.net. My greatest debt is to my advisors Klaus Ritzberger and Josef Zechner, who provided me with invaluable advice and comments. I would like to express my deeply felt gratitude to them as they have constantly and generously shared their knowledge with me. I would like to thank, and the participants in my presentations at Vienna University of Economics and Business for valuable discussions and comments. I am very grateful for the generous support of VGSF.
[Show abstract][Hide abstract] ABSTRACT: This paper shows that long debt maturities destroy equityholders' incentives to re-duce leverage in response to poor firm performance. By contrast, a sufficiently short debt maturity commits equityholders to implement such leverage reductions. However, a short debt maturity also generates transactions costs associated with rolling over matur-ing bonds. We show that this tradeoff between higher expected transactions costs against the commitment to reduce leverage when the firm is doing poorly motivates an optimal maturity-structure of corporate debt. Since firms with high costs of financial distress benefit most from committing to leverage reductions, they have a stronger incentive to issue short-term debt. The debt maturity required to commit to future leverage reductions decreases with the volatility of the firm's cash flows. We also find that the equityholders' incentives to reduce debt is non-monotonic in the firm's leverage. If the firm is pushed towards bankruptcy by a persistent series of low cash flows, then equityholders resume issuing debt to refinance maturing bonds, even when debt maturities are short.daresan participants of the seminars at London Business School, Norwegian School of Economics and Business Administration, participants of the 2005 European Finance Association Meeting in Zürich, 2004 Annual Sum-mer UBC Finance Conference, 2004 Annual Meeting of the German Finance Association in Tübingen for their suggestions and comments.