UCL Discovery
UCL home » Library Services » Electronic resources » UCL Discovery

Temporary versus Permanent Shocks: Explaining Corporate Financial Policies

Gorbenko, AS; Strebulaev, IA; (2010) Temporary versus Permanent Shocks: Explaining Corporate Financial Policies. Review of Financial Studies , 23 (7) pp. 2591-2647. 10.1093/rfs/hhq039. Green open access

[thumbnail of Gorbenko_093w-strebulaev.pdf]
Preview
Text
Gorbenko_093w-strebulaev.pdf - Accepted version

Download (1MB) | Preview

Abstract

We investigate corporate financial policies in the presence of both temporary and permanent shocks to firms’ cash flows. In our framework, cash flows can be negative and are imperfectly correlated with firm value, and earnings volatility differs from asset volatility. These results are consistent with empirical stylized facts. They are also contrary to the implications of existing dynamic capital structure models that allow only for permanent shocks to cash flows. Temporary shocks increase the importance of financial flexibility and may provide an intuitively simple and realistic explanation of empirically observed financial conservatism and low leverage phenomena. The theoretical framework developed in this article general enough to be used in various corporate finance applications.

Type: Article
Title: Temporary versus Permanent Shocks: Explaining Corporate Financial Policies
Open access status: An open access version is available from UCL Discovery
DOI: 10.1093/rfs/hhq039
Publisher version: https://doi.org/10.1093/rfs/hhq039
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management
URI: https://discovery.ucl.ac.uk/id/eprint/10104958
Downloads since deposit
27Downloads
Download activity - last month
Download activity - last 12 months
Downloads by country - last 12 months

Archive Staff Only

View Item View Item