Market timing, investment, and risk management

The 2008 financial crisis exemplifies significant uncertainties in corporate financing conditions. We develop a unified dynamic q-theoretic framework where firms have both a precautionary-savings motive and a market-timing motive for external financing and payout decisions, induced by stochastic fin...

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Bibliografische gegevens
Hoofdauteurs: Bolton, Patrick, Chen, Hui, Wang, Neng
Andere auteurs: Sloan School of Management
Formaat: Artikel
Taal:en_US
Gepubliceerd in: Elsevier B.V. 2014
Online toegang:http://hdl.handle.net/1721.1/87634
https://orcid.org/0000-0001-9605-641X
Omschrijving
Samenvatting:The 2008 financial crisis exemplifies significant uncertainties in corporate financing conditions. We develop a unified dynamic q-theoretic framework where firms have both a precautionary-savings motive and a market-timing motive for external financing and payout decisions, induced by stochastic financing conditions. The model predicts (1) cuts in investment and payouts in bad times and equity issues in good times even without immediate financing needs; (2) a positive correlation between equity issuance and stock repurchase waves. We show quantitatively that real effects of financing shocks may be substantially smoothed out as a result of firms' adjustments in anticipation of future financial crises.