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Dutch corporate liquidity mangement: New evidence on aggregation

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Author Info
W. Allard Bruinshoofd (De Nederlandsche Bank)
Clemens J. M. Kool (Utrecht School of Economics)

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Abstract

In this paper we investigate Dutch corporate liquidity management in general, and target adjustment behaviour in particular. To this purpose, we use a simple error correction model of corporate liquidity holdings applied to firm-level data for the period 1977-1997. We confirm the existence of long-run liquidity targets at the firm level. We also find that changes in liquidity holdings are driven by short-run shocks as well as the urge to converge towards targeted liquidity levels. The rate of target convergence is higher when we include more firm-specific information in the target. This result supports the idea that increased precision in defining liquidity targets associates with a faster observed rate of target convergence. It also suggests that the slow speeds of adjustment obtained in many macro studies on money demand are artefacts of aggregation bias.

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Publisher Info
Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): VII (2004)
Issue (Month): (November)
Pages: 195-230
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Handle: RePEc:cem:jaecon:v:7:y:2004:n:2:p:195-230

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Related research
Keywords: corporate liquidity demand; precautionary liquidity;

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
G3 - Financial Economics - - Corporate Finance and Governance

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Allard Bruinshoofd & Leo de Haan, 2005. "Financing the New Economy: Are ICT Firms Really That Different?," DNB Working Papers 077, Netherlands Central Bank, Research Department. [Downloadable!]
  2. W. Allard Bruinshoofd & Clemens J. M. Kool, 2004. "Dutch corporate liquidity mangement: New evidence on aggregation," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 195-230, November. [Downloadable!]
    Other versions:
  3. Christopher F. Baum & Dorothea Schäfer & Oleksandr Talavera, 2006. "The Effects of Industry-Level Uncertainty on Cash Holdings: The Case of Germany," Discussion Papers of DIW Berlin 638, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  4. W. Allard Bruinshoofd & Clemens J. M. Kool, 2006. "Non-Linear Target Adjustment in Corporate Liquidity Management: An Endogenous Thresholds Approach," DNB Working Papers 087, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  5. W. Allard Bruinshoofd & Clemens J. M. Kool, 2004. "Dutch Corporate Liquidity Management," DNB Staff Reports (discontinued) 124, Netherlands Central Bank. [Downloadable!]
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