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Collateral and capital structure

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  • Rampini, Adriano A.
  • Viswanathan, S.

Abstract

We develop a dynamic model of investment, capital structure, leasing, and risk management based on firms' need to collateralize promises to pay with tangible assets. Both financing and risk management involve promises to pay subject to collateral constraints. Leasing is strongly collateralized costly financing and permits greater leverage. More constrained firms hedge less and lease more, both cross-sectionally and dynamically. Mature firms suffering adverse cash flow shocks may cut risk management and sell and lease back assets. Persistence of productivity reduces the benefits to hedging low cash flows and can lead firms not to hedge at all.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 109 (2013)
Issue (Month): 2 ()
Pages: 466-492

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Handle: RePEc:eee:jfinec:v:109:y:2013:i:2:p:466-492

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Collateral; Capital structure; Risk management; Leasing; Tangible assets;

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References

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Citations

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Cited by:
  1. Murillo Campello & Erasmo Giambona, 2011. "Capital Structure and the Redeployability of Tangible Assets," Tinbergen Institute Discussion Papers 11-091/2/DSF24, Tinbergen Institute.
  2. Markus K. Brunnermeier & Thomas M. Eisenbach & Yuliy Sannikov, 2012. "Macroeconomics with Financial Frictions: A Survey," NBER Working Papers 18102, National Bureau of Economic Research, Inc.
  3. Rampini, Adriano A. & Sufi, Amir & Viswanathan, S., 2014. "Dynamic risk management," Journal of Financial Economics, Elsevier, vol. 111(2), pages 271-296.
  4. Daniela Fabbri & Annamaria Menichini, 2012. "The Commitment Problem of Secured Lending," CSEF Working Papers 318, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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