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Differential cash constraints, financial leverage and the demand for money: Evidence from a complete panel of Taiwanese firms

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  • Liu, Jin-Tan
  • Tsou, Meng-Wen
  • Wang, Ping

Abstract

This paper studies firms' demand for money by developing a differential-cash-constraint framework with firms' entire wage bills requiring cash in advance and a fraction of investment purchases being financed by credits. In addition to conventional scale and opportunity-cost factors, firms' financial status and profitability are crucial determinants for their money demand behavior. Employing a new data set consisting of a panel of Taiwanese firms over 1990-97, our econometric analysis lends empirical support to our theory. The estimates suggest that economies of scale in firms' cash management are present and that lower financial leverage or higher profitability raises money demand significantly.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 1 (March)
Pages: 523-542

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:1:p:523-542

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Web page: http://www.elsevier.com/locate/inca/622617

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Cited by:
  1. Paul Natke & Gregory Falls, 2010. "Economies of scale and the demand for money," Small Business Economics, Springer, vol. 35(3), pages 283-298, October.
  2. Wang, Ping & Xie, Danyang, 2012. "Real effects of money growth and optimal rate of inflation in a cash-in-advance economy with labor-market frictions," MPRA Paper 42291, University Library of Munich, Germany.

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