Pledgeability, Industry Liquidity, and Financing Cycles
Why do firms choose high debt when they anticipate high valuations, and underperform subsequently? We propose a theory of financing cycles where the importance of creditors' control rights over cash flows ("pledgeability") varies with industry liquidity. The market allows firms take o...
Gespeichert in:
| Veröffentlicht in: | The Journal of finance (New York) 2020-02, Vol.75 (1), p.419-461 |
|---|---|
| Hauptverfasser: | , , |
| Format: | Artikel |
| Sprache: | eng |
| Schlagworte: | |
| Online-Zugang: | Volltext |
| Tags: |
Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
|
| container_end_page | 461 |
|---|---|
| container_issue | 1 |
| container_start_page | 419 |
| container_title | The Journal of finance (New York) |
| container_volume | 75 |
| creator | DIAMOND, DOUGLAS W. HU, YUNZHI RAJAN, RAGHURAM G. |
| description | Why do firms choose high debt when they anticipate high valuations, and underperform subsequently? We propose a theory of financing cycles where the importance of creditors' control rights over cash flows ("pledgeability") varies with industry liquidity. The market allows firms take on more debt when they anticipate higher future liquidity. However, both high anticipated liquidity and the resulting high debt limit their incentives to enhance pledgeability. This has prolonged adverse effects in a downturn. Because these effects are hard to contract upon, higher anticipated liquidity can also reduce a firm's current access to finance. |
| doi_str_mv | 10.1111/jofi.12831 |
| format | Article |
| fullrecord | <record><control><sourceid>jstor_proqu</sourceid><recordid>TN_cdi_proquest_journals_2336197248</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><jstor_id>45277795</jstor_id><sourcerecordid>45277795</sourcerecordid><originalsourceid>FETCH-LOGICAL-c4001-3167010e8569545c08e6755ef61078a0fe08a1852162f54d42307114ccdfc0ae3</originalsourceid><addsrcrecordid>eNp9kE9Lw0AQxRdRsFYvfoKAeBFTZzb7r0cpViuFetDzsm42ZUtM6m6C5NubNAqefJeB4fdmHo-QS4QZ9rrb1YWfIVUZHpEJcgapoAKPyQSA0hRB0VNyFuMOBnE-IfKldPnWmXdf-qa7TVZV3sYmdMnaf7Y-P-xMlSdLX5nK-mqbLDpbunhOTgpTRnfxM6fkbfnwunhK15vH1eJ-nVoGgGmGQgKCU1zMOeMWlBOSc1cIBKkMFA6UQcUpClpwljOagURk1uaFBeOyKbka7-5D_dm62Ohd3Yaqf6lplgmcS8pUT92MlA11jMEVeh_8hwmdRtBDMXooRh-K6WEc4S9fuu4fUj9vlqtfz_Xo2cWmDn89Q2DNOJVSznn2DeyubmA</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype><pqid>2336197248</pqid></control><display><type>article</type><title>Pledgeability, Industry Liquidity, and Financing Cycles</title><source>Wiley Online Library Journals Frontfile Complete</source><source>Jstor Complete Legacy</source><creator>DIAMOND, DOUGLAS W. ; HU, YUNZHI ; RAJAN, RAGHURAM G.</creator><creatorcontrib>DIAMOND, DOUGLAS W. ; HU, YUNZHI ; RAJAN, RAGHURAM G.</creatorcontrib><description>Why do firms choose high debt when they anticipate high valuations, and underperform subsequently? We propose a theory of financing cycles where the importance of creditors' control rights over cash flows ("pledgeability") varies with industry liquidity. The market allows firms take on more debt when they anticipate higher future liquidity. However, both high anticipated liquidity and the resulting high debt limit their incentives to enhance pledgeability. This has prolonged adverse effects in a downturn. Because these effects are hard to contract upon, higher anticipated liquidity can also reduce a firm's current access to finance.</description><identifier>ISSN: 0022-1082</identifier><identifier>EISSN: 1540-6261</identifier><identifier>DOI: 10.1111/jofi.12831</identifier><language>eng</language><publisher>Cambridge: Wiley Periodicals, Inc</publisher><subject>Cash flow ; Corporate debt ; Creditors ; Expectations ; Finance ; Financing ; Incentives ; Liquidity ; Side effects</subject><ispartof>The Journal of finance (New York), 2020-02, Vol.75 (1), p.419-461</ispartof><rights>2020 the American Finance Association</rights><rights>2019 the American Finance Association</rights><lds50>peer_reviewed</lds50><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c4001-3167010e8569545c08e6755ef61078a0fe08a1852162f54d42307114ccdfc0ae3</citedby><cites>FETCH-LOGICAL-c4001-3167010e8569545c08e6755ef61078a0fe08a1852162f54d42307114ccdfc0ae3</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://www.jstor.org/stable/pdf/45277795$$EPDF$$P50$$Gjstor$$H</linktopdf><linktohtml>$$Uhttps://www.jstor.org/stable/45277795$$EHTML$$P50$$Gjstor$$H</linktohtml><link.rule.ids>314,777,781,800,1412,27905,27906,45555,45556,57998,58231</link.rule.ids></links><search><creatorcontrib>DIAMOND, DOUGLAS W.</creatorcontrib><creatorcontrib>HU, YUNZHI</creatorcontrib><creatorcontrib>RAJAN, RAGHURAM G.</creatorcontrib><title>Pledgeability, Industry Liquidity, and Financing Cycles</title><title>The Journal of finance (New York)</title><description>Why do firms choose high debt when they anticipate high valuations, and underperform subsequently? We propose a theory of financing cycles where the importance of creditors' control rights over cash flows ("pledgeability") varies with industry liquidity. The market allows firms take on more debt when they anticipate higher future liquidity. However, both high anticipated liquidity and the resulting high debt limit their incentives to enhance pledgeability. This has prolonged adverse effects in a downturn. Because these effects are hard to contract upon, higher anticipated liquidity can also reduce a firm's current access to finance.</description><subject>Cash flow</subject><subject>Corporate debt</subject><subject>Creditors</subject><subject>Expectations</subject><subject>Finance</subject><subject>Financing</subject><subject>Incentives</subject><subject>Liquidity</subject><subject>Side effects</subject><issn>0022-1082</issn><issn>1540-6261</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2020</creationdate><recordtype>article</recordtype><recordid>eNp9kE9Lw0AQxRdRsFYvfoKAeBFTZzb7r0cpViuFetDzsm42ZUtM6m6C5NubNAqefJeB4fdmHo-QS4QZ9rrb1YWfIVUZHpEJcgapoAKPyQSA0hRB0VNyFuMOBnE-IfKldPnWmXdf-qa7TVZV3sYmdMnaf7Y-P-xMlSdLX5nK-mqbLDpbunhOTgpTRnfxM6fkbfnwunhK15vH1eJ-nVoGgGmGQgKCU1zMOeMWlBOSc1cIBKkMFA6UQcUpClpwljOagURk1uaFBeOyKbka7-5D_dm62Ohd3Yaqf6lplgmcS8pUT92MlA11jMEVeh_8hwmdRtBDMXooRh-K6WEc4S9fuu4fUj9vlqtfz_Xo2cWmDn89Q2DNOJVSznn2DeyubmA</recordid><startdate>20200201</startdate><enddate>20200201</enddate><creator>DIAMOND, DOUGLAS W.</creator><creator>HU, YUNZHI</creator><creator>RAJAN, RAGHURAM G.</creator><general>Wiley Periodicals, Inc</general><general>Blackwell Publishers Inc</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>20200201</creationdate><title>Pledgeability, Industry Liquidity, and Financing Cycles</title><author>DIAMOND, DOUGLAS W. ; HU, YUNZHI ; RAJAN, RAGHURAM G.</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c4001-3167010e8569545c08e6755ef61078a0fe08a1852162f54d42307114ccdfc0ae3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2020</creationdate><topic>Cash flow</topic><topic>Corporate debt</topic><topic>Creditors</topic><topic>Expectations</topic><topic>Finance</topic><topic>Financing</topic><topic>Incentives</topic><topic>Liquidity</topic><topic>Side effects</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>DIAMOND, DOUGLAS W.</creatorcontrib><creatorcontrib>HU, YUNZHI</creatorcontrib><creatorcontrib>RAJAN, RAGHURAM G.</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>The Journal of finance (New York)</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>DIAMOND, DOUGLAS W.</au><au>HU, YUNZHI</au><au>RAJAN, RAGHURAM G.</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Pledgeability, Industry Liquidity, and Financing Cycles</atitle><jtitle>The Journal of finance (New York)</jtitle><date>2020-02-01</date><risdate>2020</risdate><volume>75</volume><issue>1</issue><spage>419</spage><epage>461</epage><pages>419-461</pages><issn>0022-1082</issn><eissn>1540-6261</eissn><abstract>Why do firms choose high debt when they anticipate high valuations, and underperform subsequently? We propose a theory of financing cycles where the importance of creditors' control rights over cash flows ("pledgeability") varies with industry liquidity. The market allows firms take on more debt when they anticipate higher future liquidity. However, both high anticipated liquidity and the resulting high debt limit their incentives to enhance pledgeability. This has prolonged adverse effects in a downturn. Because these effects are hard to contract upon, higher anticipated liquidity can also reduce a firm's current access to finance.</abstract><cop>Cambridge</cop><pub>Wiley Periodicals, Inc</pub><doi>10.1111/jofi.12831</doi><tpages>43</tpages><oa>free_for_read</oa></addata></record> |
| fulltext | fulltext |
| identifier | ISSN: 0022-1082 |
| ispartof | The Journal of finance (New York), 2020-02, Vol.75 (1), p.419-461 |
| issn | 0022-1082 1540-6261 |
| language | eng |
| recordid | cdi_proquest_journals_2336197248 |
| source | Wiley Online Library Journals Frontfile Complete; Jstor Complete Legacy |
| subjects | Cash flow Corporate debt Creditors Expectations Finance Financing Incentives Liquidity Side effects |
| title | Pledgeability, Industry Liquidity, and Financing Cycles |
| url | https://sfx.bib-bvb.de/sfx_tum?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2025-01-19T12%3A17%3A59IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-jstor_proqu&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=Pledgeability,%20Industry%20Liquidity,%20and%20Financing%20Cycles&rft.jtitle=The%20Journal%20of%20finance%20(New%20York)&rft.au=DIAMOND,%20DOUGLAS%20W.&rft.date=2020-02-01&rft.volume=75&rft.issue=1&rft.spage=419&rft.epage=461&rft.pages=419-461&rft.issn=0022-1082&rft.eissn=1540-6261&rft_id=info:doi/10.1111/jofi.12831&rft_dat=%3Cjstor_proqu%3E45277795%3C/jstor_proqu%3E%3Curl%3E%3C/url%3E&disable_directlink=true&sfx.directlink=off&sfx.report_link=0&rft_id=info:oai/&rft_pqid=2336197248&rft_id=info:pmid/&rft_jstor_id=45277795&rfr_iscdi=true |