We empirically examine the effect of exposure to temporary and persistent cash flow shocks on firm investment and its link with cash holdings. Theoretical models demonstrate that an expectation channel drives a wedge between the investment effects of temporary and persistent cash flow shocks,...

We investigate how debt financing responds to exposure to long-lived and temporary cash flow shocks. We identify these shocks using filtering methods that we demonstrate are highly effective for corporate finance data using Monte-Carlo simulations. The long-lived and temporary shocks we identify...