Uncertainty, Access to External Finance, and Firm Precautionary Behavior
52 Pages Posted: 29 Aug 2017 Last revised: 24 Mar 2018
Date Written: March 21, 2018
Uncertainty affects corporate policies by delaying investment decisions and by fostering firms’ precautionary saving. We document that improving firms’ access to external finance mitigates the effects of uncertainty on corporate policies. We use the staggered introduction of anti-recharacterization laws in U.S. states—which strengthened creditors’ rights to repossess pledged collateral—to identify firms’ improved access to external finance. After the passage of these laws, firms that face more uncertainty hoard less cash and increase payouts, leverage, employment, and investment in intangible assets; these firms also experience better performance than control firms.
Keywords: SPVs, anti-recharacterization laws, creditor rights, cash, intangible assets
JEL Classification: G3, K4
Suggested Citation: Suggested Citation