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Dutch Corporate Liquidity Management: New Evidence on Aggregation

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Author Info
Allard Bruinshoofd ()
Clemens J.M. Kool ()

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Abstract

In this paper we investigate Dutch corporate liquidity management in general, and target adjustment behaviour in particular. To this purpose, we use a simple error correction model of corporate liquidity holdings applied to firm-level data for the period 1977-1997. We confirm the existence of long-run liquidity targets at the firm level. We also find that changes in liquidity holdings are driven by short-run shocks as well as the urge to converge towards targeted liquidity levels. The rate of target convergence is higher when we include more firm-specific information in the target. This result supports the idea that the degree of error in defining liquidity targets associates negatively with the observed rate of target convergence. It also suggests that the slow speeds of adjustment obtained in many macro studies on money demand are artefacts of aggregation bias.

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Paper provided by Utrecht School of Economics in its series Working Papers with number 04-05.

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Length: 33 pages
Date of creation: Feb 2004
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Handle: RePEc:use:tkiwps:0405

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Related research
Keywords: Corporate liquidity demand Precautionary liquidity

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
G3 - Financial Economics - - Corporate Finance and Governance

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References listed on IDEAS
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.:
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    Other versions:
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Cited by:
(explanations, 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. Allard Bruinshoofd & Leo de Haan, 2005. "Financing the New Economy: Are ICT Firms Really That Different?," DNB Working Papers 077, Netherlands Central Bank, Research Department. [Downloadable!]
  2. W. Allard Bruinshoofd & Clemens J. M. Kool, 2006. "Non-Linear Target Adjustment in Corporate Liquidity Management: An Endogenous Thresholds Approach," DNB Working Papers 087, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  3. W. Allard Bruinshoofd & Clemens J. M. Kool, 2004. "Dutch Corporate Liquidity Management," DNB Staff Reports (discontinued) 124, Netherlands Central Bank. [Downloadable!]
  4. Christopher F. Baum & Dorothea Schäfer & Oleksandr Talavera, 2006. "The Effects of Industry-Level Uncertainty on Cash Holdings : The Case of Germany," Discussion Papers of DIW Berlin 638, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  5. W. Allard Bruinshoofd & Clemens J. M. Kool, 2004. "Dutch corporate liquidity mangement: New evidence on aggregation," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 195-230, November. [Downloadable!]
    Other versions:
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