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The Impact of Managerial Cash Use to Defer Default on Corporate Financial Policies

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abstract This article investigates the impact of the observation that managers can burn through cash to defer default during difficult times on corporate financial policies. As cash provides a buffer against bankruptcy, managers target a cash policy in excess of the one that maximizes shareholder wealth. This propensity for excess cash depends on firm and industry characteristics. The model also shows why riskier firms hold both more cash and larger excess cash than safe firms, addresses debt policy choices, and explains a wide range of empirical cash properties.
   
type working paper (English)
   
keywords Cash holdings, credit risk, managerial control
   
date of appearance 2012
publisher SSRN
review not reviewed
   
citation Arnold, M. (2012). The Impact of Managerial Cash Use to Defer Default on Corporate Financial Policies: SSRN.