Corporate financing decisions under ambiguity: Pecking order and liquidity policy implications

Elettra Agliardi, Rossella Agliardi and Willem Spanjers

Journal of Business Research, 2016, vol. 69, issue 12, 6012-6020

Abstract: This paper addresses the following unresolved questions from the perspective of ambiguity theory: Why do some firms issue equity instead of debt? Why did most firms retain their cash holdings instead of distributing them as dividends in recent times? How do firms change their financing policies during a period of severe financial constraints and ambiguity, or when facing the threat of an unpredictable financial crisis? We analyze how the values of the firm's equity and debt are affected by ambiguity. We also show that cash holdings are retained longer if the investors' ambiguity aversion bias is sufficiently large, while cash holdings become less attractive when the combined impact of ambiguity and ambiguity aversion is relatively low.

Keywords: Business decision-making; Ambiguity aversion; Corporate liquidity; Pecking order; Cash holdings; Dividend policy (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:69:y:2016:i:12:p:6012-6020

DOI: 10.1016/j.jbusres.2016.05.016

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