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Uncertainty Determinants of Corporate Liquidity

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  • Oleksandr Talavera

    (DIW Berlin)

  • Christopher Baum

    (Boston College)

  • Mustafa Caglayan

    (University of Leicester)

  • Andreas Stephan

    (European University Viadrina DIW Berlin)

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 change their liquidity ratio in response to changes in either macroeconomic or idiosyncratic uncertainty. We test this proposition 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.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2005 with number 73.

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Date of creation: 03 Sep 2005
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Handle: RePEc:mmf:mmfc05:73

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Web page: http://www.essex.ac.uk/afm/mmf/index.html

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Citations

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Cited by:
  1. Christopher F. Baum & Atreya Chakraborty & Liyan Han & Boyan Liu, 2009. "The Effects of Uncertainty and Corporate Governance on Firms' Demand for Liquidity," Boston College Working Papers in Economics 726, Boston College Department of Economics.
  2. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2013. "The Effects of Future Capital Investment and R&D Expenditures on Firms' Liquidity," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 459-474, 08.
  3. S. Balcaen & S. Manigart & H. Ooghe, 2009. "From distress to exit: determinants of the time to exit," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 09/588, Ghent University, Faculty of Economics and Business Administration.
  4. Ramírez, Andrés & Tadesse, Solomon, 2009. "Corporate cash holdings, uncertainty avoidance, and the multinationality of firms," International Business Review, Elsevier, vol. 18(4), pages 387-403, August.
  5. Caglayan, Mustafa & Xu, Bing, 2014. "Allocation effects of uncertainty on resources in Japan," Economics Letters, Elsevier, vol. 122(1), pages 23-26.
  6. Brufman, Leandro & Martinez, Lisana & Artica, Rodrigo Perez, 2013. "What are the causes of the growing trend of excess savings of the corporate sector in developed countries ? an empirical analysis of three hypotheses," Policy Research Working Paper Series 6571, The World Bank.

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