Non-Financial Firms as Cross-Market Arbitrageurs∗
نویسنده
چکیده
I demonstrate that non-financial corporations act as cross-market arbitrageurs in their own securities. Firms use one type of security to replace another in response to shifts in relative valuations, inducing negatively-correlated financing flows in different markets. Net equity repurchases and net debt issuance both increase when the expected returns on debt are particularly low, or when the expected returns on equity are relatively high. Credit valuations affect equity financing as much as equity valuations do, and vice versa. Cross-market corporate arbitrage is most prevalent among large, unconstrained firms. It counteracts market segmentation and helps to account for aggregate financing patterns. JEL classification: G32, G02, G10.
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