EconPapers    
Economics at your fingertips  
 

Dynamic Corporate Liquidiy

Roberto Steri and Lukas Schmid
Additional contact information
Roberto Steri: Duke University
Lukas Schmid: Duke University

No 1266, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: When external finance is costly, liquid funds provide corporations with instruments to absorb and react to shocks. Making optimal use of liquid funds means transferring them to times and states where they are most valuable. We examine the determinants of corporate liquidity management in a dynamic model where stochastic investment opportunities and cash shortfalls provide liquidity needs. Firms can transfer liquidity across time using cash and across states drawing on credit lines subject to debt capacity constraints. We generate empirical and quantitative predictions by means of calibration. Small and constrained firms use cash to provide liquidity to fund investment opportunities, while large and unconstrained firms manage their liquidity needs by means of credit lines. In the time series, equity issuances are used to replenish cash balances, and credit lines to fund unanticipated investment opportunities. We find strong support for our predictions in the data. Overall, the model thus provides a quantitatively and empirically successful framework explaining corporate investment, financing and liquidity policies and the joint occurrence of cash, debt and credit lines in the presence of capital market imperfections.

Date: 2013
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2013/paper_1266.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:1266

Access Statistics for this paper

More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2020-05-08
Handle: RePEc:red:sed013:1266