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Dutch corporate liquidity mangement: New evidence on aggregation

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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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Bibliographic 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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Keywords: corporate liquidity demand; precautionary liquidity;

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Cited by:
  1. W. Allard Bruinshoofd & Clemens J. M. Kool, 2006. "Non-Linear Target Adjustment in Corporate Liquidity Management: An Endogenous Thresholds Approach," DNB Working Papers, Netherlands Central Bank, Research Department 087, Netherlands Central Bank, Research Department.
  2. A. Bruinshoofd & C.J.M. Kool, 2004. "Dutch Corporate Liquidity Management: New Evidence on Aggregation," Working Papers, Utrecht School of Economics 04-05, Utrecht School of Economics.
  3. Roberto Álvarez & Andrés Sagner & Carla Valdivia, 2012. "Liquidity Crises and Corporate Cash Holdings in Chile," The Developing Economies, Institute of Developing Economies, Institute of Developing Economies, vol. 50(4), pages 378-392, December.
  4. 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, DIW Berlin, German Institute for Economic Research 638, DIW Berlin, German Institute for Economic Research.
  5. Bigelli, Marco & Sánchez-Vidal, Javier, 2012. "Cash holdings in private firms," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(1), pages 26-35.
  6. Godfred A. Bokpin & Zangina Isshaq & Francis Aboagye-Otchere, 2011. "Ownership structure, corporate governance and corporate liquidity policy: Evidence from the Ghana Stock Exchange," Journal of Financial Economic Policy, Emerald Group Publishing, Emerald Group Publishing, vol. 3(3), pages 262-279, August.
  7. Allard Bruinshoofd & Leo de Haan, 2005. "Financing the New Economy: Are ICT Firms Really That Different?," DNB Working Papers, Netherlands Central Bank, Research Department 077, Netherlands Central Bank, Research Department.
  8. W. Allard Bruinshoofd & Clemens J. M. Kool, 2004. "Dutch Corporate Liquidity Management," DNB Staff Reports (discontinued), Netherlands Central Bank 124, Netherlands Central Bank.

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