Aggregate External Financing and Savings Waves

Eisfeldt, Andrea L.; Muir, Tyler

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Aggregate External Financing and Savings Waves

NBER Working Paper No. w20442

34 Pages Posted: 8 Sep 2014 Last revised: 10 May 2021

See all articles by Andrea L. Eisfeldt

Tyler Muir

University of California, Los Angeles (UCLA) - Anderson School of Management; National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written: September 2014

Abstract

US data display aggregate external financing and savings waves. Firms can allocate costly external finance to productive capital, or to liquid assets with low physical returns. If firms raise costly external finance and accumulate liquidity, either the cost of external finance is relatively low, or the total return to liquidity accumulation, including its shadow value as future internal funds, is particularly high. We formalize this intuition by estimating a dynamic model of firms’ financing and savings decisions, and use our model along with firm level data to construct an empirical estimate of the average cost of external finance from 1980-2014.

Suggested Citation: Suggested Citation

Eisfeldt, Andrea L. and Muir, Tyler, Aggregate External Financing and Savings Waves (September 2014). NBER Working Paper No. w20442, Available at SSRN: https://ssrn.com/abstract=2492957