Uncertainty, Access to Debt, and Firm Precautionary Behavior
58 Pages Posted: 29 Aug 2017 Last revised: 18 Jun 2020
Date Written: May 31, 2020
Better access to debt markets mitigates the effects of uncertainty on corporate policies. We establish this result using the staggered introduction of anti-recharacterization laws in U.S. states. These laws enhanced firms’ ability to borrow by strengthening creditors’ rights to repossess collateral pledged in SPVs. After the passage of the laws, firms that face more uncertainty hoard less cash and increase payouts, leverage, and investment in intangible assets. Our findings suggest that better access to debt markets shields firms from fluctuations in uncertainty and decreases firms’ precautionary behavior, contributing to the deployment of cash and other internal resources to investment in intangible capital.
Keywords: SPVs, anti-recharacterization laws, creditor rights, cash, intangible assets, geopolitical risk, political uncertainty
JEL Classification: G3, K4
Suggested Citation: Suggested Citation