Working Paper: CEPR ID: DP13531
Authors: Giovanni Favara; Janet Gao; Mariassunta Giannetti
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: SPVs; financial frictions; hedging; anti-recharacterization laws; creditor rights; cash; intangible assets
JEL Codes: G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anti-recharacterization laws (K24) | access to debt markets (F34) |
| access to debt markets (F34) | cash holdings (E41) |
| access to debt markets (F34) | leverage (G24) |
| access to debt markets (F34) | investment in intangible assets (E22) |
| access to debt markets (F34) | precautionary behavior (D91) |
| access to debt markets (F34) | resilience to uncertainty shocks (D89) |
| access to debt markets (F34) | profitability (L21) |