Uncertainty, Access to Debt, and Firm Precautionary Behavior
49 Pages Posted: 29 Aug 2017 Last revised: 11 Jun 2019
Date Written: June 10, 2019
Uncertainty affects corporate policies and the real economy, but little is known on whether financial frictions affect firms’ vulnerability to (economic and financial) uncertainty. We show that facilitating access to debt markets mitigates the effects of uncertainty on corporate policies. We use the staggered introduction of anti-recharacterization laws in US states—which strengthened creditors’ rights to repossess collateral pledged in SPVs—to identify firms’ improved access to debt markets. After the passage of the laws, firms that face more uncertainty hoard less cash, and increase payouts, leverage and investment in intangible assets, indicating that firms’ vulnerability to uncertainty is reduced.
Keywords: SPVs, anti-recharacterization laws, creditor rights, cash, intangible assets
JEL Classification: G3, K4
Suggested Citation: Suggested Citation