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Who holds cash? and why?

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  • Calvin Schnure
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    Abstract

    Cash holdings of nonfinancial firms range widely, and are related to firm size, industry and access to the public bond market. Cash holdings are positively correlated with agency proxies, suggesting that firms that cannot borrow easily due to agency problems hold greater cash stocks--perhaps as a cushion to prevent shortfalls in cash flow from impinging on investment. However, this correlation holds only for the very highest cash holders, especially small firms. The group of afflicted firms appears to be less than one-quarter of COMPUSTAT firms. Agency proxies are irrelevant for a large majority of firms.

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    File URL: http://www.federalreserve.gov/pubs/feds/1998/199813/199813abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/1998/199813/199813pap.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1998-13.

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    Date of creation: 1998
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    Handle: RePEc:fip:fedgfe:1998-13

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    Related research

    Keywords: Cash management ; Cash flow;

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    1. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Gilchrist, Simon & Himmelberg, Charles P., 1995. "Evidence on the role of cash flow for investment," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 541-572, December.
    3. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-60, September.
    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    5. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
    6. Barr, David G & Cuthbertson, Keith, 1992. "Company Sector Liquid Asset Holdings: A Systems Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 83-97, February.
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    Cited by:
    1. Christian Calmès, 2004. "Financial Market Imperfection, Overinvestment,and Speculative Precaution," Working Papers 04-27, Bank of Canada.

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