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Corporate Policies with Temporary and Permanent Shocks

Author

Listed:
  • Jean-Paul Decamps

    (TSM - Toulouse School of Management Research - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse, TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • S Gryglewicz
  • E Morellec
  • Stephane Villeneuve

    (TSM - Toulouse School of Management Research - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse, TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

Abstract

We model the financing, cash holdings, and hedging policies of a firm facing financing frictions and subject to permanent and transitory cash flow shocks. The permanent and transitory shocks generate distinct, sometimes opposite, effects on corporate policies. We use the model to develop a rich set of empirical predictions. In our model, correlated permanent and transitory shocks imply less risk, lower cash savings, and a drop in the value of credit lines. The composition of cash-flow shocks affects the cash-flow sensitivity of cash, which can be positive or negative. Optimal hedging of permanent and transitory shocks may involve opposite positions

Suggested Citation

  • Jean-Paul Decamps & S Gryglewicz & E Morellec & Stephane Villeneuve, 2017. "Corporate Policies with Temporary and Permanent Shocks," Post-Print halshs-01698452, HAL.
    • Handle: RePEc:hal:journl:halshs-01698452
    DOI: 10.1093/rfs/hhw07
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    Citations

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    Cited by:

    1. Décamps, Jean-Paul & Villeneuve, Stéphane, 2015. "Integrating profitability prospects and cash management," TSE Working Papers 15-570, Toulouse School of Economics (TSE).
    2. Couzoff, Panagiotis & Banerjee, Shantanu & Pawlina, Grzegorz, 2022. "Effectiveness of monitoring, managerial entrenchment, and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 77(C).
    3. Andrew B Abel & Stavros Panageas, 2023. "Precautionary Saving in a Financially Constrained Firm," The Review of Financial Studies, Society for Financial Studies, vol. 36(7), pages 2878-2921.
    4. Lin, Chunpeng & Yang, Jinqiang, 2022. "Entrepreneur’s incentives for risk-taking and short-term debt," International Review of Financial Analysis, Elsevier, vol. 84(C).
    5. Décamps, Jean-Paul & Villeneuve, Stéphane, 2022. "Learning about profitability and dynamic cash management," Journal of Economic Theory, Elsevier, vol. 205(C).
    6. Décamps, Jean-Paul & Villeneuve, Stéphane, 2019. "Dynamics of cash holdings, learning about profitability, and access to the market," TSE Working Papers 19-1046, Toulouse School of Economics (TSE), revised Sep 2020.
    7. Cong, Lin William & Li, Ye & Wang, Neng, 2022. "Token-based platform finance," Journal of Financial Economics, Elsevier, vol. 144(3), pages 972-991.
    8. Niu, Yingjie & Yang, Jinqiang & Wu, Yaoyao & Zhao, Siqi, 2022. "Corporate social responsibility and dynamic liquidity management," Research in International Business and Finance, Elsevier, vol. 59(C).
    9. Carlos Uribe-Terán & Diego F. Grijalva & Ivan Gachet, 2025. "The contractionary effects of protectionist trade policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 161(3), pages 821-868, August.
    10. Dmitry A. Ruban & Natalia N. Yashalova, 2024. "Strategic priorities of corporate policy in lithium mining: do mission statements mark a road to sustainability?," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(6), pages 15711-15731, June.
    11. Albertus, James F. & Glover, Brent & Levine, Oliver, 2022. "Foreign investment of US multinationals: The effect of tax policy and agency conflicts," Journal of Financial Economics, Elsevier, vol. 144(1), pages 298-327.
    12. Xia, Xin & Gan, Liu, 2021. "Financing with equity-for-guarantee swaps and dynamic investment under incomplete markets," Economic Modelling, Elsevier, vol. 98(C), pages 349-360.
    13. Easterwood, John C. & Paye, Bradley S. & Xie, Yutong, 2021. "Firm uncertainty and corporate policies: The role of stock return skewness," Journal of Corporate Finance, Elsevier, vol. 69(C).
    14. Bolton, Patrick & Wang, Neng & Yang, Jinqiang, 2019. "Investment under uncertainty with financial constraints," Journal of Economic Theory, Elsevier, vol. 184(C).
    15. Li, Delong & Lu, Lei & Mu, Congming & Yang, Jinqiang, 2019. "Biased beliefs, costly external finance, and firm behavior : A Unified theory," Research Discussion Papers 18/2019, Bank of Finland.
    16. Poeschl, Johannes, 2023. "Corporate debt maturity and investment over the business cycle," European Economic Review, Elsevier, vol. 152(C).
    17. Lambrecht, Bart M., 2017. "Real options in finance," Journal of Banking & Finance, Elsevier, vol. 81(C), pages 166-171.
    18. Della Seta, Marco & Morellec, Erwan & Zucchi, Francesca, 2020. "Short-term debt and incentives for risk-taking," Journal of Financial Economics, Elsevier, vol. 137(1), pages 179-203.
    19. Morellec, Erwan & Gryglewicz, Sebastian & Mayer, Simon, 2018. "Agency Conflicts over the Short and Long Run: Short-termism, Long-termism, and Pay-for-Luck," CEPR Discussion Papers 12720, C.E.P.R. Discussion Papers.
    20. Gryglewicz, Sebastian & Mayer, Simon & Morellec, Erwan, 2020. "Agency conflicts and short- versus long-termism in corporate policies," Journal of Financial Economics, Elsevier, vol. 136(3), pages 718-742.
    21. Malamud, Semyon & Zucchi, Francesca, 2019. "Liquidity, innovation, and endogenous growth," Journal of Financial Economics, Elsevier, vol. 132(2), pages 519-541.
    22. Chen, Tuyue & Mu, Congming & Tang, Shengzhuo, 2025. "The effects of tax cuts and financing subsidies on environmentally and financially constrained firms," Economics Letters, Elsevier, vol. 247(C).
    23. Yuan, Liuchuang & Jiang, Jinglu & Mu, Congming & Chen, Tuyue, 2023. "Dynamic liquidity management with asymmetric adjustment costs," Finance Research Letters, Elsevier, vol. 58(PA).
    24. Li, Delong & Lu, Lei & Mu, Congming & Yang, Jinqiang, 2019. "Biased beliefs, costly external finance, and firm behavior: A Unified theory," Bank of Finland Research Discussion Papers 18/2019, Bank of Finland.

    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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