Uncertainty, Access to Debt, and Firm Precautionary Behavior

51 Pages Posted: 19 Feb 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: February 2019

Abstract

Little is known on whether financial factors influence firms' vulnerability to uncertainty shocks. We show that 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 through 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 leverage and intangible investment. Firms' vulnerability to uncertainty shocks is reduced by the enhanced ability to issue debt through SPVs.

Keywords: anti-recharacterization laws, cash, Creditor rights, Financial Frictions, Hedging, intangible assets, SPVs

JEL Classification: G3

Suggested Citation

Favara, Giovanni and Gao, Janet and Giannetti, Mariassunta, Uncertainty, Access to Debt, and Firm Precautionary Behavior (February 2019). CEPR Discussion Paper No. DP13531. Available at SSRN: https://ssrn.com/abstract=3336789

Giovanni Favara (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
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United States

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

Janet Gao

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
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Mariassunta Giannetti

Stockholm School of Economics ( email )

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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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