Corporate Policies with Temporary and Permanent Shocks

Décamps, Jean-Paul, Gryglewicz, S., Morellec, E. and Villeneuve, Stéphane (2017) Corporate Policies with Temporary and Permanent Shocks. Review of Financial Studies, 30 (1). pp. 162-210.

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Official URL: http://tse-fr.eu/pub/30656

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.

Item Type: Article
Language: English
Date: January 2017
Refereed: Yes
Uncontrolled Keywords: Corporate policies, permanent vs, temporary shocks, financing frictions
JEL codes: F32 - Current Account Adjustment; Short-Term Capital Movements
G31 - Capital Budgeting; Fixed Investment and Inventory Studies
G35 - Payout Policy
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse), TSM Research (Toulouse)
Site: UT1
Date Deposited: 01 Sep 2016 10:06
Last Modified: 07 Jun 2019 13:25
OAI ID: oai:tse-fr.eu:30656
URI: http://publications.ut-capitole.fr/id/eprint/22338

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