Uncertainty, Access to Debt, and Firm Precautionary Behavior

Mariassunta Giannetti, Giovanni Favara and Janet Gao

No 13531, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Little is known on whether financial factors influence firms’ vulnerability to uncertainty shocks. We show that access to debt markets mitigates the effects of uncertainty on corporate policies. We use the staggered introduction of anti-recharacterization laws in U.S. states—which strengthened creditors’ rights to repossess collateral pledged through SPVs—to identify firms’ improved access to debt markets. After the passage of the laws, firms that face more uncertainty hoard less cash, and increase leverage and intangible investment. Firms’ vulnerability to uncertainty shocks is reduced by the enhanced ability to issue debt through SPVs.

Keywords: Spvs; Financial frictions; Hedging; Anti-recharacterization laws; Creditor rights; Cash; Intangible assets (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-cfn
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Journal Article: Uncertainty, access to debt, and firm precautionary behavior (2021)
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