The Impact of Macroeconomic Uncertainty on Non-Financial Firms' Demand for Liquidity
AbstractThis paper empirically investigates whether changes in macroeconomic volatility affect the efficient allocation of non-financial firms' liquid assets. We argue that higher uncertainty will hamper managers' ability to accurately predict firm-specific information and induce them to implement similar cash management policies. Contrarily, when the macroeconomic environment becomes more tranquil, each manager will have the latitude to behave more idiosyncratically as she can adjust liquid assets based on the specific requirements of the firm, bringing about a more efficient allocation of liquid assets. Our empirical analysis provides support for these predictions.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 552.
Length: 34 pages
Date of creation: 23 Dec 2002
Date of revision: 15 Dec 2005
Publication status: Published, Review of Financial Economics, 15, 289-304, 2006.
Note: Previously circulated as "The Impact of Macroeconomic Uncertainty on Cash Holdings for Non-Financial Firms"
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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Web page: http://fmwww.bc.edu/EC/
More information through EDIRC
Cash holdings; macroeconomic uncertainty; time series; ARCH; non-financial firms.;
Other versions of this item:
- Baum, Christopher F. & Caglayan, Mustafa & Ozkan, Neslihan & Talavera, Oleksandr, 2006. "The impact of macroeconomic uncertainty on non-financial firms' demand for liquidity," Review of Financial Economics, Elsevier, vol. 15(4), pages 289-304.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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2002_02, University of Liverpool Management School.
- Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2002. "The Impact of Macroeconomic Uncertainty on Bank Lending Behavior," Computing in Economics and Finance 2002 94, Society for Computational Economics.
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