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Using a measure of operating leverage that directly reflects the importance of fixed operating costs in firms' cost structures, we investigate why operating leverage is related to financial policies. High fixed cost firms have lower leverage and larger cash holdings than low fixed cost firms not...
Persistent link: https://www.econbiz.de/10012905924
. Contrary to the prediction of pecking order theory, it is shown that good projects should be financed with equity, to take …
Persistent link: https://www.econbiz.de/10012909239
We examine how time-varying macroeconomic conditions affect firms' financing decisions. A principal components decomposition of several macroeconomic variables characterizes three phases of the business cycle relative to recessions: early recovery, robust recovery, and economic crest; a fourth...
Persistent link: https://www.econbiz.de/10012911987
In this article we argue that asymmetric information can explain why seignorage is an inferior choice to debt for governments. We also argue that the Ricardian equivalence for governments is very similar to what the Modigliani-Miller proposition is for corporations. Our model is based on Bolton...
Persistent link: https://www.econbiz.de/10012890514
This paper develops a tractable general equilibrium with endogenous firm capital structure decisions driven by changes in economic uncertainty. The model enables a critical assessment of standard paradigms of corporate finance in order to highlight empirically important directions for...
Persistent link: https://www.econbiz.de/10012935351
We study the differences in the allocation of cash flow between Western European private and public firms. Public firms have a significantly higher investment-cash flow sensitivity than comparable private firms. These differences in investment-cash flow sensitivities are not due to more...
Persistent link: https://www.econbiz.de/10012936409
We analyze how creditors' simultaneous debt and equity holdings affect firm investment policies. Firms with dual ownership are less likely to have capital expenditure restrictions in loan contracts and the relation varies in predicted ways with borrowers' monitoring needs and dual owners'...
Persistent link: https://www.econbiz.de/10012938166
We analyze how relationship finance, such as venture capital and relationship lending, affects growth firms' capital structure choices. We show that relationship investors that obtain a strong bargaining position due to their privileged information about the firm, optimally cash in on their...
Persistent link: https://www.econbiz.de/10012940495
This paper presents evidence that firms choose conservative financial policies partly to mitigate workers' exposure to unemployment risk. We exploit changes in state unemployment insurance laws as a source of variation in the costs borne by workers during layoff spells. We find that higher...
Persistent link: https://www.econbiz.de/10012940594
This paper introduces a new form of contingent capital, contingent convertible securities (CCSs), which might repeatedly convert between debt- and equity-like instruments depending on financial conditions. We derive explicit prices of corporate securities, assuming the cash flow is modeled as a...
Persistent link: https://www.econbiz.de/10012974699