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The Effects of Liquidity Shocks on Corporate Investments and Cash Holdings: Evidence from Actuarial Pension Gains/Losses

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  • Takafumi Sasaki

Abstract

type="main"> This paper investigates how anticipated liquidity shocks affect corporate investment and cash holdings by examining the impacts of actuarial pension gains/losses that do not reduce current internal resources but will reduce those available in the future. Using a sample from Japanese manufacturing firms in which pension deficits had a huge impact on the internal resources of sponsoring firms, I show that pension losses significantly decrease the capital expenditures of sponsoring firms. Pension losses also increase corporate cash holdings, suggesting precautionary demands for cash prepared for future pension contributions. Overall, the results indicate that managers consider anticipated liquidity shocks in determining current investment and cash-saving policies.

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  • Takafumi Sasaki, 2015. "The Effects of Liquidity Shocks on Corporate Investments and Cash Holdings: Evidence from Actuarial Pension Gains/Losses," Financial Management, Financial Management Association International, vol. 44(3), pages 685-707, September.
    • Handle: RePEc:bla:finmgt:v:44:y:2015:i:3:p:685-707
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    References listed on IDEAS

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    Cited by:

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    2. Ke‐wei Cheng & Chen Feng & Yao Zhang, 2021. "Land price control and employee wages: A bunching analysis of factor cost transfer," Growth and Change, Wiley Blackwell, vol. 52(4), pages 2477-2508, December.
    3. Goto, Shingo & Yanase, Noriyoshi, 2021. "Pension return assumptions and shareholder-employee risk-shifting," Journal of Corporate Finance, Elsevier, vol. 70(C).
    4. Luca Larcher & Francis Breedon, 2020. "Discounting and the market valuation of defined benefit pensions," Working Papers 932, Queen Mary University of London, School of Economics and Finance.

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