Leverage and Cash Dynamics / Harry DeAngelo, Andrei S. Gonçalves, René M. Stulz.

Format:

Book

Author/Creator:

DeAngelo, Harry.

Contributor:

National Bureau of Economic Research.

Gonçalves, Andrei S.

Stulz, René M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28970.

NBER working paper series no. w28970

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

This paper documents new and empirically important interactions between cash-balance and leverage dynamics. Cash ratios typically vary widely over extended horizons, with dynamics remarkably similar to (and complementary with) those of capital structure. Leverage and cash dynamics interact approximately as predicted by the internal-versus-external funding regimes in Myers and Majluf (1984). Leverage is quite volatile when cash ratios are stable and vice-versa, while net-debt ratios are almost always volatile. Most firms increase leverage sharply as cash balances (internal funds) become scarce. Capital structure models that extend Hennessy and Whited (2005) to include cash-balance dynamics explain some, but not all, aspects of the observed relation between cash squeezes and leverage increases.

Notes:

Print version record

June 2021.