Corporate Cash Shortfalls and Financing Decisions
Department
Economics, Finance and Quantitative Analysis
Document Type
Article
Publication Date
4-1-2021
Abstract
Given their actual revenue and spending, most net equity issuers and an overwhelming majority of net debt issuers would face immediate cash depletion without external financing. Debt issuers tend to have short-lived cash needs, while equity issuers often have persistent cash needs. On average, debt issuers immediately spend almost all of the proceeds, while equity issuers retain much of the proceeds in cash. Anticipated near-future cash needs and fixed costs of financing help explain the fraction of the proceeds being retained. Our findings support a funding-horizon theory in which cash needs and the nature of cash needs motivate financing decisions.
Journal Title
Review of Financial Studies
Journal ISSN
08939454
Volume
34
Issue
4
First Page
1789
Last Page
1833
Digital Object Identifier (DOI)
10.1093/rfs/hhaa099