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Manchester Grand Hyatt, Seaport B
American Finance Association
Corporate Debt and Liquidity
Saturday, Jan. 4, 2020 2:30 PM - 4:30 PM (PDT)
- Chair: Michael Roberts, University of Pennsylvania
Rollover Risk and the Dynamics of Debt
AbstractI study how firms adjust leverage, maturity and cash to manage rollover risk, and show that time-variation in concentration of maturity dates arises endogenously. To avoid rollover risk, firms prefer long-term debt with dispersed maturity dates. However, severe negative shocks force firms to borrow above an optimal level. They issue short-term debt as a commitment to delever in the next period. This concentrates maturity dates in the next period. The calibrated version of the model matches several empirical facts: more profitable firms have high leverage, use longer maturity bonds and stagger their maturity dates.
The Impact of Labor Market Frictions on Corporate Liquidity Management
AbstractWe show that labor market frictions are first-order for understanding corporate liquidity management. A model with labor market frictions and liquidity management implies strong links between labor variables and cash holding policies. In particular, labor share is positively while wage growth is negatively associated with firms' investment in cash balances. This is because pre-committed wage payments to labor make cash savings more valuable to firms in future states where financing constraints are tightened. A model without wage rigidity does not quantitatively imply these predictions. Empirically, we show that wage growth negatively while labor share positively forecast corporate cash holding policies in a cross-section of international firms, consistent with the model predictions. Furthermore, the links between labor variables and cash policies are stronger for firms with higher wage rigidity.
University of Illinois
University of Chicago
University of Michigan
- G3 - Corporate Finance and Governance