Corporate Policies with Temporary and Permanent Shocks

Jean-Paul Decamps, Sebastian Gryglewicz, E Morellec and Stephane Villeneuve ()
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Jean-Paul Decamps: TSM - Toulouse School of Management Research - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse, TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique
Stephane Villeneuve: TSM - Toulouse School of Management Research - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse, TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique

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Abstract: We model the financing, cash holdings, and hedging policies of a firm facing financing frictions and subject to permanent and transitory cash flow shocks. The permanent and transitory shocks generate distinct, sometimes opposite, effects on corporate policies. We use the model to develop a rich set of empirical predictions. In our model, correlated permanent and transitory shocks imply less risk, lower cash savings, and a drop in the value of credit lines. The composition of cash-flow shocks affects the cash-flow sensitivity of cash, which can be positive or negative. Optimal hedging of permanent and transitory shocks may involve opposite positions

Date: 2017
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Citations: View citations in EconPapers (14)

Published in The Review of Financial Studies, 2017, 30 (1), pp.162-210. ⟨10.1093/rfs/hhw07⟩

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Working Paper: Corporate Policies with Temporary and Permanent Shocks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01698452

DOI: 10.1093/rfs/hhw07

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