Uncertainty, Access to Debt, and Firm Precautionary Behavior
52 Pages Posted: 29 Aug 2017 Last revised: 1 Oct 2018
Date Written: September 30, 2018
Uncertainty affects corporate policies and the real economy, but little is known on which factors mitigate firms’ vulnerability to uncertainty shocks. This paper shows that facilitating access to debt markets 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 collateral pledged in SPVs—to identify firms’ improved access to debt. After the passage of the laws, firms that face more uncertainty hoard less cash, and increase payouts, leverage, and investment in intangible assets. We show that firms’ vulnerability to uncertainty shocks is reduced by the enhanced ability to issue debt through SPVs.
Keywords: SPVs, anti-recharacterization laws, creditor rights, cash, intangible assets
JEL Classification: G3, K4
Suggested Citation: Suggested Citation