Before the Storm: Firm Policies and Varying Recession Risk

• 成果类型: Article; Early Access
• 署名作者: Kakhbod, Ali; Livdan, Dmitry; Reppen, Max; Umar, Tarik
• 署名单位: University of California Berkeley; University of California System; University of California Berkeley; Boston University; Rice University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2024.08861
• 发表日期: 2026
• 关键词: recession risk; business cycles; Cash management; Financial crisis

摘要

Recession risk fluctuates substantially before the storm, yet little is known about how firms of different sizes adapt their policies accordingly. We embed timevarying recession risk into a model of liquidity management and investment, allowing firms to time their precautionary policies. Estimation reveals that small firms are less sensitive than large firms in their issuance, payout, and investment strategies to variations in recession risk. This is because small firms proactively build larger cash reserves relative to their current cash flow volatility during periods of low recession risk, anticipating that aggressive investment will gradually drain liquidity, grow cash flow volatility, and raise the risk of liquidation if a recession occurs. In contrast, large firms rely on robust cash flows to replenish liquidity during periods of low recession risk, deferring other precautionary actions until recession risk intensifies. These results have important implications for estimating the impact of recessions and macroprudential policy.