Uncertainty, Access to Debt, and Firm Precautionary Behavior

49 Pages Posted: 29 Aug 2017 Last revised: 11 Jun 2019

See all articles by Giovanni Favara

Giovanni Favara

Federal Reserve Board

Janet Gao

Indiana University - Kelley School of Business

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 10, 2019

Abstract

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

Favara, Giovanni and Gao, Janet and Giannetti, Mariassunta, Uncertainty, Access to Debt, and Firm Precautionary Behavior (June 10, 2019). Kelley School of Business Research Paper No. 17-64; Swedish House of Finance Research Paper No. 17-17. Available at SSRN: https://ssrn.com/abstract=3026939 or http://dx.doi.org/10.2139/ssrn.3026939

Giovanni Favara

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.giovannifavara.com

Janet Gao

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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