The Influence of Investment Volatility on Capital Structure and Cash Holdings

Mona Yaghoubi (mona.yaghoubi@canterbury.ac.nz) and Michael O’Connor Keefe

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This paper studies the relationship between investment volatility, capital structure, and cash levels. Our evidence suggests: i) firms with relatively high realizations of future investment volatility hold relatively low levels of debt and high levels of cash, ii) firms fund large investment by increasing (issuing) debt and/or decreasing (using) cash, iii) immediately after funding large investments firms reduce debt levels and increase cash holdings. Overall, our results are consistent with the DeAngelo, DeAngelo and Whited (2011) model. In particular, firms with high realizations of future investment volatility keep their debt levels low and cash levels high to finance uncertain future investments.

Keywords: Capital structure; cash holding and investment volatility (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2019-10-01
New Economics Papers: this item is included in nep-cfn
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https://repec.canterbury.ac.nz/cbt/econwp/1911.pdf (application/pdf)

Related works:
Working Paper: The Influence of Investment Volatility on Capital Structure and Cash Holdings (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:19/11

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