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Where did all the dollars go?: the effect of cash flows on capital and asset structure

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Where did all the dollars go? the effect of cash flows on capital and asset structure. / Dasgupta, Sudipto; Noe, Thomas; Wang, Zhen.

In: Journal of Financial and Quantitative Analysis, Vol. 45, No. 5, 10.2011, p. 1259-1294.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Harvard

Dasgupta, S, Noe, T & Wang, Z 2011, 'Where did all the dollars go? the effect of cash flows on capital and asset structure', Journal of Financial and Quantitative Analysis, vol. 45, no. 5, pp. 1259-1294. https://doi.org/10.1017/S0022109011000512

APA

Dasgupta, S., Noe, T., & Wang, Z. (2011). Where did all the dollars go? the effect of cash flows on capital and asset structure. Journal of Financial and Quantitative Analysis, 45(5), 1259-1294. https://doi.org/10.1017/S0022109011000512

Vancouver

Dasgupta S, Noe T, Wang Z. Where did all the dollars go? the effect of cash flows on capital and asset structure. Journal of Financial and Quantitative Analysis. 2011 Oct;45(5):1259-1294. Epub 2011 Jun 29. doi: 10.1017/S0022109011000512

Author

Dasgupta, Sudipto ; Noe, Thomas ; Wang, Zhen. / Where did all the dollars go? the effect of cash flows on capital and asset structure. In: Journal of Financial and Quantitative Analysis. 2011 ; Vol. 45, No. 5. pp. 1259-1294.

Bibtex

@article{2227996ebb5a4c5e8138052ef2303bf5,
title = "Where did all the dollars go?: the effect of cash flows on capital and asset structure",
abstract = "This paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial sensitivity to cash flows, investment does not absorb the entire cash flow shock. In fact, the tighter the financial constraints, the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction. Firms stage their response to increases in cash flow, delaying investment while building up cash stocks and reducing leverage. These results suggest that much of the short-run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market, especially when financing constraints tighten.",
author = "Sudipto Dasgupta and Thomas Noe and Zhen Wang",
year = "2011",
month = oct,
doi = "10.1017/S0022109011000512",
language = "English",
volume = "45",
pages = "1259--1294",
journal = "Journal of Financial and Quantitative Analysis",
issn = "0022-1090",
publisher = "Cambridge University Press",
number = "5",

}

RIS

TY - JOUR

T1 - Where did all the dollars go?

T2 - the effect of cash flows on capital and asset structure

AU - Dasgupta, Sudipto

AU - Noe, Thomas

AU - Wang, Zhen

PY - 2011/10

Y1 - 2011/10

N2 - This paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial sensitivity to cash flows, investment does not absorb the entire cash flow shock. In fact, the tighter the financial constraints, the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction. Firms stage their response to increases in cash flow, delaying investment while building up cash stocks and reducing leverage. These results suggest that much of the short-run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market, especially when financing constraints tighten.

AB - This paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial sensitivity to cash flows, investment does not absorb the entire cash flow shock. In fact, the tighter the financial constraints, the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction. Firms stage their response to increases in cash flow, delaying investment while building up cash stocks and reducing leverage. These results suggest that much of the short-run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market, especially when financing constraints tighten.

U2 - 10.1017/S0022109011000512

DO - 10.1017/S0022109011000512

M3 - Journal article

VL - 45

SP - 1259

EP - 1294

JO - Journal of Financial and Quantitative Analysis

JF - Journal of Financial and Quantitative Analysis

SN - 0022-1090

IS - 5

ER -