Corporate liquidity and capital structure

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)62_Review of books or of software (or similar publications/items)peer-review

41 Scopus Citations
View graph of relations

Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)797-837
Journal / PublicationReview of Financial Studies
Volume25
Issue number3
Publication statusPublished - Mar 2012
Externally publishedYes

Abstract

We solve for a firm's optimal cash holding policy within a continuous time, contingent claims framework using dividends, short-term borrowing, and equity issues as controls assuming mean reversion of earnings. Optimal cash is non-monotone in business conditions and increasing in the level of long-term debt. The model matches closely a wide range of empirical benchmarks and predicts cash and leverage dynamics in line with the empirical literature. Firm value is quite insensitive to changes in the level of long-term debt. The model has interesting implications for asset substitution, hedging, and pecking order. Growth opportunities do not greatly affect cash holding policy. © 2011 The Author.

Citation Format(s)

Corporate liquidity and capital structure. / Anderson, Ronald W.; Carverhill, Andrew.

In: Review of Financial Studies, Vol. 25, No. 3, 03.2012, p. 797-837.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)62_Review of books or of software (or similar publications/items)peer-review