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Non-Linear Target Adjustment in Corporate Liquidity Management: An Endogenous Thresholds Approach

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  • W. Allard Bruinshoofd
  • Clemens J. M. Kool

Abstract

We provide new empirical evidence on non- linear liquidity management in Dutch firms. Our results reveal that liquidity adjustment from below the target is significantly faster than from above. We find no evidence for bands of inaction around the target.

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File URL: http://www.dnb.nl/binaries/Working%20Paper%20No%2087-2006_tcm46-146744.pdf
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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 087.

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Date of creation: Feb 2006
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Handle: RePEc:dnb:dnbwpp:087

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Keywords: Corporate liquidity management; Non-linear adjustment; Endogenous thresholds; Panel approach.;

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  1. Bar-Ilan, Avner & Perry, David & Stadje, Wolfgang, 2004. "A generalized impulse control model of cash management," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1013-1033, March.
  2. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
  3. 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.
  4. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
  5. W.A. Bruinshoofd & C.J.M. Kool, 2004. "Dutch corporate liquidity management: new evidence on aggregation," WO Research Memoranda (discontinued) 756, Netherlands Central Bank, Research Department.
  6. 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.
  7. 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.
  8. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox Of Liquidity," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 733-771, August.
  9. Milne, Alistair & Robertson, Donald, 1996. "Firm behaviour under the threat of liquidation," Journal of Economic Dynamics and Control, Elsevier, vol. 20(8), pages 1427-1449, August.
  10. Ono, Masanori, 2003. "A computational approach to liquidity-constrained firms over an infinite horizon," Journal of Economic Dynamics and Control, Elsevier, vol. 28(1), pages 189-205, October.
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