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...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
Elsevier B.V.
2014
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| Online Access: | http://hdl.handle.net/1721.1/87634 https://orcid.org/0000-0001-9605-641X |
| _version_ | 1811070724745461760 |
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| author | Bolton, Patrick Chen, Hui Wang, Neng |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Bolton, Patrick Chen, Hui Wang, Neng |
| author_sort | Bolton, Patrick |
| collection | MIT |
| description | 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. |
| first_indexed | 2024-09-23T08:40:34Z |
| format | Article |
| id | mit-1721.1/87634 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T08:40:34Z |
| publishDate | 2014 |
| publisher | Elsevier B.V. |
| record_format | dspace |
| spelling | mit-1721.1/876342022-09-23T13:46:27Z Market timing, investment, and risk management Bolton, Patrick Chen, Hui Wang, Neng Sloan School of Management Chen, Hui 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. Chazen Institute 2014-06-04T19:25:30Z 2014-06-04T19:25:30Z 2013-07 2012-02 Article http://purl.org/eprint/type/JournalArticle 0304405X http://hdl.handle.net/1721.1/87634 Bolton, Patrick, Hui Chen, and Neng Wang. “Market Timing, Investment, and Risk Management.” Journal of Financial Economics 109, no. 1 (July 2013): 40–62. https://orcid.org/0000-0001-9605-641X en_US http://dx.doi.org/10.1016/j.jfineco.2013.02.006 Journal of Financial Economics Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Elsevier B.V. SSRN |
| spellingShingle | Bolton, Patrick Chen, Hui Wang, Neng Market timing, investment, and risk management |
| title | Market timing, investment, and risk management |
| title_full | Market timing, investment, and risk management |
| title_fullStr | Market timing, investment, and risk management |
| title_full_unstemmed | Market timing, investment, and risk management |
| title_short | Market timing, investment, and risk management |
| title_sort | market timing investment and risk management |
| url | http://hdl.handle.net/1721.1/87634 https://orcid.org/0000-0001-9605-641X |
| work_keys_str_mv | AT boltonpatrick markettiminginvestmentandriskmanagement AT chenhui markettiminginvestmentandriskmanagement AT wangneng markettiminginvestmentandriskmanagement |