Corporate Policies with Temporary and Permanent Shocks

Jean-Paul Décamps, Sebastian Gryglewicz, E. Morellec and Stephane Villeneuve

No 15-552, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We develop a dynamic model of investment, financing, liquidity and risk manage- ment policies in which firms face financing frictions and are subject to permanent and temporary cash ow shocks. In this model, the cash- ow sensitivity of cash increases with financing constraints and cash ow volatility. Persistence of cash ow shocks and volatility of permanent shocks help manage corporate liquidity. Temporary shocks volatility hinders it. More profitable firms access equity markets less often but raise more funds when doing so. Hedging permanent or temporary shocks may involve op- posite positions. Derivatives usage and asset substitution are not equivalent when hedging permanent shocks.

Keywords: Corporate policies; permanent vs; temporary shocks; financing frictions (search for similar items in EconPapers)
JEL-codes: F32 G31 G35 (search for similar items in EconPapers)
Date: 2015-01, Revised 2016-06-15
New Economics Papers: this item is included in nep-dge and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://www.tse-fr.eu/sites/default/files/TSE/docu ... mppermanentrfsr2.pdf Revised and resubmit RFS. (application/pdf)

Related works:
Working Paper: Corporate Policies with Temporary and Permanent Shocks (2017)
Working Paper: Corporate Policies with Temporary and Permanent Shocks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:28979

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