Corporate policies with permanent and transitory shocks

We model the financing, cash holdings, and hedging policies of a firm facing financing frictions and subject to permanent and transitory cash flow shocks. The permanent and transitory shocks generate distinct, sometimes opposite, effects on corporate policies. We use the model to develop a rich set of empirical predictions. In our model, correlated permanent and transitory shocks imply less risk, lower cash savings, and a drop in the value of credit lines. The composition of cash-flow shocks affects the cash-flow sensitivity of cash, which can be positive or negative. Optimal hedging of permanent and transitory shocks may involve opposite positions.


Publié dans:
Review of Financial Studies, 30, 1, 162-210
Année
2017
ISSN:
0893-9454
Laboratoires:




 Notice créée le 2017-05-01, modifiée le 2019-04-08


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