Corporations Hoard Cash from Bonds, Not Loans
In corporate finance, not all cash is created equal. A new paper published in the Journal of Corporate Finance by Paolo Colla and Florian Nagler (both of Bocconi’s Department of Finance) uncovers a surprising split in how firms treat different types of debt when it comes to saving cash. Titled “Firms save from bonds but not from loans”, the study finds that companies routinely save significant portions of funds raised through bond financing—but show no such behavior with loans.
Firms save approximately 14 cents of every dollar borrowed through bonds, while they do not exhibit similar savings behavior with loans.
This isn’t a fleeting quirk. The pattern holds consistently over time and across firm types, with pledgeability driving the behavior. The paper quantifies the effect: “firms save approximately 14 cents of every dollar borrowed through bonds, while they do not exhibit similar savings behavior with loans.” Even some two years later, most of that cash remains unspent.
The context: corporate cash hoarding
For years, researchers have tracked corporate cash holdings, noting that companies accumulate cash as a buffer against financial frictions. Past studies have shown firms save aggressively from internal cash flows and, more surprisingly, from equity financing. What Colla and Nagler introduce is a sharp distinction in saving behavior across types of debt—a dimension that was mostly unexplored in relation with corporate savings behavior.
Bonds vs. loans: a structural divide
The distinction matters because loans are typically secured, negotiated with intermediaries (banks), and are often shorter-term. Bonds, by contrast, are unsecured, issued on open markets, and tend to carry fewer restrictions. According to the authors, this divide in structure has real implications for how firms manage liquidity.
Their data—drawn from over 21,000 firm-year observations of U.S. public companies from 2003 to 2018—shows a consistent pattern: “firms save from bonds but not from loans.” Notably, this distinct savings behavior is triggered not by the risk of distress, but by the inability to pledge assets.
What drives the difference?
Lower asset tangibility and shorter asset maturities are linked to substantial increases in saving rates from bond borrowings
The paper identifies pledgeability—the ability to use assets as collateral—as the dominant factor explaining why firms save from bonds. “Lower asset tangibility and shorter asset maturities are linked to substantial increases in saving rates from bond borrowings,” Colla and Nagler write. In fact, companies with lower tangibility save almost four times more from bond proceeds than their high-tangibility peers.
They have put to test other hypotheses too, like whether systematic cash flow risk influences saving behavior, and while there is limited evidence for risk effects, pledgeability consistently dominates the results.
Theory meets reality
To support their empirical findings, Colla and Nagler use a version of the Acharya-Davydenko-Strebulaev (ADS) model. The model shows that in settings with costly default and external financing constraints, firms with little collateral are better off accumulating cash. This model-generated behavior closely mirrors real-world observations.
Rethinking debt strategy
This research reframes how we think about debt—not as a uniform pool of capital, but as a tool whose design drives corporate behavior. The bond market doesn’t just provide funding; it enables liquidity management in ways bank loans cannot. For firms constrained by what they can pledge, bonds aren’t just an option—they are a strategic lever to stay liquid and flexible.
As Colla and Nagler show, “borrowing-to-save” is not just crisis behavior—it is structural, persistent, and driven by the fundamentals of how debt is packaged and priced. That insight has implications not just for corporate treasurers, but for how we regulate, invest in, and interpret corporate financial health.