Corporate Cash Shortfalls and Financing Decisions

Review of Financial Studies, Forthcoming

90 Pages Posted: 4 Apr 2015 Last revised: 1 Jul 2020

See all articles by Rongbing Huang

Rongbing Huang

Kennesaw State University - Michael J. Coles College of Business

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: June 15, 2020

Abstract

Given their actual revenue and spending, most net equity issuers and an overwhelming majority of net debt issuers would face immediate cash depletion without external financing. Debt issuers tend to have short-lived cash needs while equity issuers often have persistent cash needs. On average, debt issuers immediately spend almost all of the proceeds, while equity issuers retain much of the proceeds in cash. Anticipated near-future cash needs and fixed costs of financing help explain the fraction of the proceeds being retained. Our findings support a funding-horizon theory in which cash needs and the nature of cash needs motivate financing decisions.

Keywords: Key Words: Cash Needs, Cash Holdings, External Financing, Security Issuance, SEO, PIPE, Bond Offering, Bank Loan, Financing Decision, Capital Structure, Floatation Cost, Precautionary Saving, Market Timing, Pecking Order, Corporate Lifecycle, Financial Flexibility, Static Tradeoff, Dynamic Tradeoff

JEL Classification: G32, G14

Suggested Citation

Huang, Rongbing and Ritter, Jay R., Corporate Cash Shortfalls and Financing Decisions (June 15, 2020). Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2589096 or http://dx.doi.org/10.2139/ssrn.2589096

Rongbing Huang

Kennesaw State University - Michael J. Coles College of Business ( email )

560 Parliament Garden Way
Mail Drop #0403
Kennesaw, GA 30144
United States

Jay R. Ritter (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)

HOME PAGE: http://https://site.warrington.ufl.edu/ritter

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