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Uncertainty Determinants of Corporate Liquidity

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Author Info
Christopher F. Baum () (Boston College, DIW Berlin)
Mustafa Caglayan (University of Sheffield)
Andreas Stephan (Europa-Universitat Viadrina, DIW Berlin)
Oleksandr Talavera () (Aberdeen Business School)

Additional information is available for the following registered author(s):

Abstract

This paper investigates the link between the optimal level of non-financial firms' liquid assets and uncertainty. We develop a partial equilibrium model of precautionary demand for liquid assets showing that firms alter their liquidity ratio in response to changes in either macroeconomic or idiosyncratic uncertainty. We test this hypothesis using a panel of non-financial US firms drawn from the COMPUSTAT quarterly database covering the period 1993-2002. The results indicate that firms increase their liquidity ratios when macroeconomic uncertainty or idiosyncratic uncertainty increases.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 634.

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Length: 32 pages
Date of creation: 07 Dec 2005
Date of revision: 09 Oct 2006
Publication status: published, Economic Modelling, 25 (2008), pp. 833-849
Handle: RePEc:boc:bocoec:634

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Related research
Keywords: liquidity; uncertainty; non-financial firms; dynamic panel data;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
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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. Christopher F Baum & Mustafa Caglayan & Oleksandr Talavera, 2009. "Corporate Liquidity Management and Future Investment Expenditures," Boston College Working Papers in Economics 712, Boston College Department of Economics. [Downloadable!]
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