Uncertainty, access to debt, and firm precautionary behavior

Giovanni Favara, Janet Gao and Mariassunta Giannetti

Journal of Financial Economics, 2021, vol. 141, issue 2, 436-453

Abstract: Better access to debt markets mitigates the effects of uncertainty on corporate policies. We establish this result using the staggered introduction of anti-recharacterization laws in US states. These laws enhanced firms’ ability to borrow by strengthening creditors’ rights to repossess collateral pledged in special purpose vehicles. After the passage of the laws, firms that face more uncertainty hoard less cash and increase payouts, leverage, and investment in intangible assets. Our findings suggest that better access to debt markets shields firms from fluctuations in uncertainty and decreases firms’ precautionary behavior, contributing to the deployment of cash and other internal resources to investment in intangible capital.

Keywords: Anti-recharacterization laws; SPVs; Creditor rights; Cash; Intangible assets; Geopolitical risk; Political uncertainty (search for similar items in EconPapers)
JEL-codes: G3 K4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Working Paper: Uncertainty, Access to Debt, and Firm Precautionary Behavior (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:141:y:2021:i:2:p:436-453

DOI: 10.1016/j.jfineco.2021.04.010

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