Financing Lumpy Adjustment

Christoph Görtz, Plutarchos Sakellaris and John Tsoukalas

Working Papers from Business School - Economics, University of Glasgow

Abstract: We Study how firms finance Lumpy adjustment in capital, employment and inventories. We analyse U.S. firm data from Compustat covering 1971-2013. Lumpy expansion and contraction episodes in firms' productive assets are important in accounting for movements in macroecnomic and financial aggregate variables. Firms use primarily cash balances and debt in order to expand or contract capacity, but these margins are not perfect substitutes. Cash balances play a preparatory role rising (falling) temporarily prior to lumpy positive (negative) adjustment. Debt is also important as firms de-leverage (increase leverage) prior to lumpy positive (negative) adjustment and then slowly increase leverage (deleverage) often several years after the event. Small and large firms differ in their use of external equity to finance Lumpy events. During Lumpy adjustment profitability and leverage are positively correlated.

Keywords: Lumpy firm adjustment; Event study; Leverage; Debt; Cash; Financing. (search for similar items in EconPapers)
JEL-codes: E32 G30 G32 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-acc, nep-his, nep-mac and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2017_06

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