Corporate investment, debt and liquidity choices in the light of financial constraints and hedging needs

  • We examine firms’ simultaneous choice of investment, debt financing and liquidity in a large sample of US corporates between 1980 and 2014. We partition the sample according to the firms’ financial constraints and their needs to hedge against future shortfalls in operating income. In contrast to earlier work, our joint estimation approach shows that cash flows affect the corporate decisions of unconstrained firms more strongly than those of constrained firms. Investment-cash flow sensitivities are particularly intense for unconstrained firms with high hedging needs. Investment opportunities (as proxied by Q), however, play a larger role for constrained firms with the effects being strongest in case of low hedging needs. Interestingly, constrained firms with low hedging needs are found to employ more debt to finance their investment opportunities and build up significant cash holdings at the same time. Our results hence indicate overinvestment behavior for unconstrained firms but no underinvestment for constrained firms if they have low hedging needs.

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Metadaten
Author:Christina E. BannierGND, Carolin Victoria Schürg
URN:urn:nbn:de:hebis:30:3-382797
URL:http://ssrn.com/abstract=2643550
DOI:https://doi.org/10.2139/ssrn.2643550
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 509
Series (Serial Number):CFS working paper series (509)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Date of Publication (online):2015/08/15
Date of first Publication:2015/08/15
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2015/10/08
Tag:cash flow sensitivity; cash holdings; debt issuance; investment
Issue:August 11, 2015
Page Number:43
HeBIS-PPN:366777785
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht