The Effects of Financial Flexibility Demand on Corporate Financial Decisions

54 Pages Posted: 4 Aug 2016

Date Written: August 3, 2016

Abstract

Financial flexibility is a firm's ability to deploy its financial resources to meet future financing needs. Flexibility-building firms' financial decisions are geared toward building up financial flexibility --- maintain low leverage by issuing equity in order to raise cash. As firms progress and start making investments, they utilize their financial resources --- flexibility-utilizing firms increase debt and use reserved cash in order to exercise investment options. As more cash flows are generated and investment opportunities diminish, firms recharge their financial flexibility by repaying debt and increasing cash using internal funds. The findings have important implications for previously documented empirical regularities.

Keywords: Financial flexibility; Cash holding; Capital structure; Trade-off theory; Pecking-order theory

JEL Classification: JEL Classification: G32 G35

Suggested Citation

Byoun, Soku, The Effects of Financial Flexibility Demand on Corporate Financial Decisions (August 3, 2016). Available at SSRN: https://ssrn.com/abstract=2817972 or http://dx.doi.org/10.2139/ssrn.2817972

Soku Byoun (Contact Author)

Baylor University ( email )

Department of Finance Insurance & Real Estate
P.O.Box 98004
Waco, TX 76712
254-710-7849 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
230
Abstract Views
813
rank
137,017
PlumX Metrics