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Cash holdings and financing decisions under ambiguity

E. Agliardi, R. Agliardi and W. Spanjers
Authors registered in the RePEc Author Service: Elettra Agliardi ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: This paper addresses the following unresolved questions: 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.

JEL-codes: D01 D81 G30 G32 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-mic and nep-upt
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