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Collateral and Capital StructureAdriano A. RampiniDuke University S. ViswanathanDuke University - Fuqua School of Business; Duke University - Department of Economics January 2013 Forthcoming, Journal of Financial Economics AFA 2011 Denver Meetings Paper Abstract: We develop a dynamic model of investment, capital structure, leasing, and risk management based on firms' need to collateralize promises to pay with tangible assets. Both financing and risk management involve promises to pay subject to collateral constraints. Leasing is strongly collateralized costly financing and permits greater leverage. More constrained firms hedge less and lease more, both cross-sectionally and dynamically. Mature firms suffering adverse cash flow shocks may cut risk management and sell and lease back assets. Persistence of productivity reduces the benefits to hedging low cash flows and can lead firms not to hedge at all.
Number of Pages in PDF File: 59 Keywords: Collateral, Capital Structure, Investment, Risk Management, Leasing, Tangible Capital, Intangible Capital JEL Classification: D24, D82, E22, G31, G32, G35 Accepted Paper SeriesDate posted: March 12, 2009 ; Last revised: January 17, 2013Suggested CitationContact Information
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