Cash management and risk-taking incentives with performance-sensitive debt under stochastic financing conditions

Yanming Yao and Pengfei Luo

Finance Research Letters, 2022, vol. 49, issue C

Abstract: We build a model of cash management for financially constrained firm with performance-sensitivity debt (PSD) in a stochastic financing conditions framework. In this model, stochastic financing conditions lead shareholders to have incentives for risk-taking. This paper highlights the implications of PSD on cash management and risk-taking incentives for shareholders. We find that firms with PSD issue equity earlier, and delay payout to shareholders relative to firms with straight debt. In addition, we also discover that larger performance-sensitivity leads shareholders to have stronger risk-taking incentives.

Keywords: Cash management; Risk-taking incentives; Performance-sensitivity debt; Stochastic financing conditions (search for similar items in EconPapers)
JEL-codes: G11 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612322003282
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003282

DOI: 10.1016/j.frl.2022.103104

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().