Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266012 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9977
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We study how firms adjust their financial positions around the times when they undertake lumpy adjustments in capital or employment. Using U.S. firm level data, we document systematic patterns of cash and debt financing around lumpy adjustment, remarkably similar across capital and employment. Firm specific fundamentals in Tobin's Q, profitability and productivity are leading indicators of the lumpy adjustment. Cash and debt capacity are actively manipulated, and contribute significantly quantitatively, to increase financial resources in anticipation of the expansion of firm capacity. Lumpy contractions in productive capacity are undertaken following years where firms reduce cash balances and hold above average levels of debt. During and after contractions, firms rebuild cash and reduce debt growth significantly in a concerted effort to restore financial resources by adjusting their productive operations.
Subjects: 
lumpy adjustment
firm capital and employment dynamics
leverage
debt
cash
JEL: 
G30
G32
E32
Document Type: 
Working Paper
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