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The Marginal Value of Cash: Corporate Savings, Investment, and Financing

Author

Listed:
  • Patrick Bolton

    (National Bureau of Economic Research, Cambridge, Massachusetts, USA
    Centre for Economic Policy Research, London, United Kingdom
    Imperial College London, London, United Kingdom)

  • Hui Chen

    (National Bureau of Economic Research, Cambridge, Massachusetts, USA
    Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA)

  • Neng Wang

    (Asian Bureau of Finance and Economic Research, Singapore
    National Bureau of Economic Research, Cambridge, Massachusetts, USA
    Cheung Kong Graduate School of Business, Beijing, China)

Abstract

The fact that internal liquidity is a key source of corporate funding puts the marginal value of cash at the center of a variety of firm decisions, including investment, payout, financing, savings, and risk management policies. The marginal value of cash is inherently a dynamic concept, because a firm facing financing frictions has to be forward-looking, managing its asset and liability structures in a unified framework and carefully trading off the use of liquidity across time and states. We present a dynamic framework for corporate liquidity management and survey the related literature, with a focus on the determinants of the marginal value of cash and its ubiquitous role in firm decisions.

Suggested Citation

  • Patrick Bolton & Hui Chen & Neng Wang, 2024. "The Marginal Value of Cash: Corporate Savings, Investment, and Financing," Annual Review of Financial Economics, Annual Reviews, vol. 16(1), pages 295-324, November.
    • Handle: RePEc:anr:refeco:v:16:y:2024:p:295-324
    DOI: 10.1146/annurev-financial-111021-103759
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G3 - Financial Economics - - Corporate Finance and Governance

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