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The effects of uncertainty and corporate governance on firms’ demand for liquidity

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  • Christopher F. Baum
  • Atreya Chakraborty
  • Liyan Han
  • Boyan Liu

Abstract

We find that US corporations’ demand for liquidity is sensitive to two important factors: uncertainty facing the firm and the quality of corporate governance. Following prior research, we find that both factors have important influences on firms’ cash holdings. Our results also indicate that the interactions between uncertainty and governance measures are significant. From a policy perspective, these new findings indicate that both governance and the nature of uncertainty may play an important role in managing liquidity risks. Policy recommendations may not only be limited to changes in financial policy but may also include changes in corporate governance.

Suggested Citation

  • Christopher F. Baum & Atreya Chakraborty & Liyan Han & Boyan Liu, 2012. "The effects of uncertainty and corporate governance on firms’ demand for liquidity," Applied Economics, Taylor & Francis Journals, vol. 44(4), pages 515-525, February.
    • Handle: RePEc:taf:applec:44:y:2012:i:4:p:515-525
    DOI: 10.1080/00036846.2010.508733
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    3. Haeng-Sun Kim, 2019. "Differential Impact of Uncertainty on Exporting Decision in Risk-averse and Risk-taking Firms," Working Papers hal-02128335, HAL.

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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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