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Aggregate Issuance and Savings Waves

Andrea L. Eisfeldt

UCLA Anderson School of Management

Tyler Muir

Yale University

May 2014

We use firms' decisions in the cross-section about their sources and uses of funds in order to make inferences about the aggregate cost of external finance. The basic intuition is as follows: Firms which raise costly external finance can invest the issuance proceeds in productive capital assets, or in liquid financial assets with a low physical rate of return. If firms raise costly external finance and allocate some of the funds to liquid assets, either the cost of external finance is relatively low, or the total return to liquidity accumulation, including its value as a hedging asset, is particularly high. We construct and estimate a quantitative, dynamic model of firms' financing and savings decisions. We then use the model's predictions for variation in firm policies and implied cross sectional moments, along with empirical moments from Compustat, to infer the average cost of external finance per dollar raised in the US time series 1980-2010.

Number of Pages in PDF File: 55

Keywords: liquidity management, external finance

JEL Classification: G31, G32, E22

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Date posted: January 13, 2012 ; Last revised: May 21, 2014

Suggested Citation

Eisfeldt, Andrea L. and Muir, Tyler, Aggregate Issuance and Savings Waves (May 2014). Available at SSRN: http://ssrn.com/abstract=1984063 or http://dx.doi.org/10.2139/ssrn.1984063

Contact Information

Andrea L. Eisfeldt
UCLA Anderson School of Management ( email )
110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
Tyler Muir (Contact Author)
Yale University ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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