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The Cash Flow Sensitivity of Cash: Replication, Extension, and Robustness

Author

Listed:
  • Almeida, Heitor

    (U of Illinois at Urbana-Champaign)

  • Campello, Murillo

    (Cornell U)

  • Weisbach, Michael S.

    (Ohio State U)

Abstract

This paper reexamines the empirical evidence on the cash flow sensitivity of cash presented by Almeida, Campello, and Weisbach (2004). The original paper introduces a model in which financially constrained firms choose to save cash out of incremental cash flows but financially unconstrained do not. The authors find evidence consistent with this hypothesis on a sample of U.S. public firms between 1971 and 2000. This paper extends that analysis in a number of ways. In particular, it uses a larger sample covering the 1971-2019 window, considers a number of alternative definitions of financial constraints, and incorporates new methods and tests suggested by Welch (2020), Almeida, Campello, and Galvao (2010), and Grieser and Hadlock (2019). The original empirical findings are robust to these alternative specifications.

Suggested Citation

  • Almeida, Heitor & Campello, Murillo & Weisbach, Michael S., 2021. "The Cash Flow Sensitivity of Cash: Replication, Extension, and Robustness," Working Paper Series 2021-02, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2021-02
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    File URL: https://ssrn.com/abstract=3773591
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    Cited by:

    1. Eskandari, Ruhollah & Zamanian, Morteza, 2022. "Cost of carry, financial constraints, and dynamics of corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 74(C).
    2. Gaurav Gupta & Jitendra Mahakud, 2022. "Impact of financial distress on investment-cash flow sensitivity: evidence from emerging economy," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 19(4), pages 713-743, July.

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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