Working Paper: NBER ID: w20442
Authors: Andrea L. Eisfeldt; Tyler Muir
Abstract: US data display aggregate external financing and savings waves. Firms can allocate costly external finance to productive capital, or to liquid assets with low physical returns. If firms raise costly external finance and accumulate liquidity, either the cost of external finance is relatively low, or the total return to liquidity accumulation, including its shadow value as future internal funds, is particularly high. We formalize this intuition by estimating a dynamic model of firms’ financing and savings decisions, and use our model along with firm level data to construct an empirical estimate of the average cost of external finance from 1980-2014.
Keywords: external financing; savings; macroeconomics; corporate finance
JEL Codes: E23; E32; E44; G01; G3; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| External financing (G39) | Savings activity (D14) |
| Firms raising external finance (G24) | Liquid assets accumulation (G19) |
| External financing costs (G32) | Liquid assets accumulation (G19) |