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The Impact of Macroeconomic Uncertainty on Cash Holdings for Non-Financial Firms

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Author Info
Christopher F. Baum
Mustafa Caglayan
Neslihan Ozkan
Oleksandr Talavera

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Abstract

This paper investigates the effects of macroeconomic volatility on non-financial firms' cash holding behavior. Using an augmented cash buffer-stock model, we demonstrate that an increase in macroeconomic volatility will cause the cross-sectional distribution of firms' cash-to-asset ratios to narrow. We test this prediction on a panel of non-financial firms drawn from the annual COMPUSTAT database covering the period 1957-2000, and find that as macroeconomic uncertainty increases, firms behave more homogeneously. Our results are shown to be robust to the inclusion of the levels of several macroeconomic factors.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.41289.de/dp410.pdf
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Publisher Info
Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 410.

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Length: 35 p.
Date of creation: 2004
Date of revision:
Handle: RePEc:diw:diwwpp:dp410

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Related research
Keywords: Cash holdings; Macroeconomic uncertainty; Time series; ARCH; Non–financial firms;

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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 & Mark E. Schaffer & Steven Stillman, 2002. "Instrumental variables and GMM: Estimation and testing," Boston College Working Papers in Economics 545, Boston College Department of Economics, revised 14 Feb 2003. [Downloadable!]
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  2. Ozkan, Aydin & Ozkan, Neslihan, 2004. "Corporate cash holdings: An empirical investigation of UK companies," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2103-2134, September. [Downloadable!] (restricted)
  3. 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. [Downloadable!]
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  4. Dittmar, Amy & Mahrt-Smith, Jan & Servaes, Henri, 2003. "International Corporate Governance and Corporate Cash Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 111-133, March. [Downloadable!]
  5. Christopher F Baum, 2001. "DENTON: Stata module to interpolate a quarterly flow series from annual totals via proportional Denton method," Statistical Software Components S422501, Boston College Department of Economics, revised 15 Jul 2008. [Downloadable!]
  6. Paul Beaudry & Mustafa Caglayan & Fabio Schiantarelli, 2001. "Monetary Instability, the Predictability of Prices, and the Allocation of Investment: An Empirical Investigation Using U.K. Panel Data," American Economic Review, American Economic Association, vol. 91(3), pages 648-662, June. [Downloadable!] (restricted)
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  7. Kim, Chang-Soo & Mauer, David C. & Sherman, Ann E., 1998. "The Determinants of Corporate Liquidity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(03), pages 335-359, September. [Downloadable!]
  8. Heitor Almeida & Murillo Campello & Michael S. Weisbach, 2004. "The Cash Flow Sensitivity of Cash," Journal of Finance, American Finance Association, vol. 59(4), pages 1777-1804, 08. [Downloadable!] (restricted)
  9. Frenkel, Jacob A & Jovanovic, Boyan, 1980. "On Transactions and Precautionary Demand for Money," The Quarterly Journal of Economics, MIT Press, vol. 95(1), pages 25-43, August. [Downloadable!] (restricted)
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  1. Oleksandra Talavera & Christopher Baum & Andreas Stephan, 2005. "Macroeconomics Uncertainty and Firm Leverage," Money Macro and Finance (MMF) Research Group Conference 2005 72, Money Macro and Finance Research Group. [Downloadable!]
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  2. Andreas Stephan & Oleksandr Talavera, . "Effects of macroeconomic uncertainty on leverage for US non-financial firms," German Stata Users' Group Meetings 2004 8, Stata Users Group. [Downloadable!]
  3. Park, Sang-Min & Talavera, Oleksandr & Lutz, Stefan, 2003. "The Effects of Regional and Industry : Wide FDI Spillovers on Export of Ukrainian Firms," ZEW Discussion Papers 03-54, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  4. Christopher F. Baum & Andreas Stephan & Oleksandr Talavera, 2004. "The Effects of Uncertainty on the Leverage of Non-Financial Firms," Boston College Working Papers in Economics 602, Boston College Department of Economics, revised 27 Jul 2007. [Downloadable!]
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  5. Oleksandr Talavera & Christopher Baum & Mustafa Caglayan & Andreas Stephan, 2005. "Uncertainty Determinants of Corporate Liquidity," Money Macro and Finance (MMF) Research Group Conference 2005 73, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
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