Firm-level uncertainty and frictions: implications for capital and financial decisions in the US

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985998%3A_____%2F25%3A00635746" target="_blank" >RIV/67985998:_____/25:00635746 - isvavai.cz</a>
Alternative codes found
RIV/00216208:11640/25:00635748
Result on the web
<a href="https://www.cerge-ei.cz/pdf/wp/Wp793.pdf" target="_blank" >https://www.cerge-ei.cz/pdf/wp/Wp793.pdf</a>
DOI - Digital Object Identifier
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Result language
angličtina
Original language name
Firm-level uncertainty and frictions: implications for capital and financial decisions in the US
Original language description
This paper examines how profit volatility has influenced firms’ decisions over the past four decades. Using Compustat data, we document that: (1) high-investing firms cut their investment rate more sharply than other firms, implying that extensive margin investment decisions - whether to invest in new projects or not - are important for the uncertainty effects, (2) the interaction between firms’ financial and real conditions amplifies the negative impact of increased uncertainty on the investment rates. We also develop and calibrate a heterogeneous-firm model that incorporates both real and financial costs. In the model, higher capital adjustment costs increase the investment inaction rate by 31%, while higher financial costs reduce the investment spike rate by 46%. Incorporating irreversible capital into the collateral constraint reduces firms’ debt capacity, leading to an increase in the investment inaction rate, cash holdings, and net dividends.
Czech name
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Czech description
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Project
<a href="/en/project/LX22NPO5101" target="_blank" >LX22NPO5101: The National Institute for Research on the Socioeconomic Impact of Diseases and Systemic Risks</a><br>
Continuities
I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Publication year
2025
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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