Aggregate External Financing and Savings Waves
US data display aggregate external financing and savings waves. Firms can allocate costly external finance to productive capital, or to liquid assets with low physical returns. If firms raise costly external finance and accumulate liquidity, either the cost of external finance is relatively low, or the total return to liquidity accumulation, including its shadow value as future internal funds, is particularly high. We formalize this intuition by estimating a dynamic model of firms’ financing and savings decisions, and use our model along with firm level data to construct an empirical estimate of the average cost of external finance from 1980-2014.
Previously circulated as "Aggregate Issuance and Savings Waves." We thank seminar participants and discussants at Kellogg, UCLA, Yale, Columbia, University of Michigan, Stanford, NYU, the NBER Corporate Finance Meeting, the Federal Reserve Bank of St. Louis Financial Frictions in Macroeconomics Conference, the UBC Winter Finance Conference, the SED Annual Meeting, the NBER Capital Markets and the Economy Meeting, the LAEF Advances in Macro-Finance conference, the AEA Annual Meeting, and the WFA Annual Meeting, for helpful comments. Eisfeldt gratefully acknowledges financial support from the Fink Center for Finance & Investments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Andrea L. Eisfeldt
I conduct compensated financial research for a hedge fund.
Andrea L. Eisfeldt & Tyler Muir, 2016. "Aggregate External Financing and Savings Waves," Journal of Monetary Economics, .