Differential cash constraints, financial leverage and the demand for money: Evidence from a complete panel of Taiwanese firms
This paper studies firms' demand for money by developing a differential-cash-constraint framework with firms' entire wage bills requiring cash in advance and a fraction of investment purchases being financed by credits. In addition to conventional scale and opportunity-cost factors, firms' financial status and profitability are crucial determinants for their money demand behavior. Employing a new data set consisting of a panel of Taiwanese firms over 1990-97, our econometric analysis lends empirical support to our theory. The estimates suggest that economies of scale in firms' cash management are present and that lower financial leverage or higher profitability raises money demand significantly.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Richard T. Selden, 1961. "The Postwar Rise In The Velocity Of Money A Sectoral Analysis," Journal of Finance, American Finance Association, vol. 16(4), pages 483-545, December.
- Dornbusch, Rudiger & Frenkel, Jacob A, 1973. "Inflation and Growth: Alternative Approaches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 141-56, Part I Fe.
- Karni, Edi, 1973. "The Transactions Demand for Cash: Incorporation of the Value of Time into the Inventory Approach," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1216-25, Sept.-Oct.
- Bover, Olympia & Watson, Nadine, 2001.
"Are there Economies of Scale in the Demand for Money by Firms? Some Panel Data Estimates,"
CEPR Discussion Papers
2818, C.E.P.R. Discussion Papers.
- Bover, Olympia & Watson, Nadine, 2005. "Are there economies of scale in the demand for money by firms? Some panel data estimates," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1569-1589, November.
- Olympia Bover & Nadine Watson, 2000. "Are there Economies of Scale in the Demand for Money by Firms? some Panel Data Estimates," Banco de Espa�a Working Papers 0008, Banco de Espa�a.
- V.V. Chari & Larry E. Jones & Rodolfo E. Manuelli, 1996.
"Inflation, growth, and financial intermediation,"
Federal Reserve Bank of St. Louis, issue May, pages 41-58.
- Dennis, Enid & Smith, V Kerry, 1978. "A Neoclassical Analysis of the Demand for Real Cash Balances by Firms," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 793-813, October.
- Mulligan, Casey B, 1997. "Scale Economies, the Value of Time, and the Demand for Money: Longitudinal Evidence from Firms," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1061-79, October.
- Bregman, Arie & Fuss, Melvyn & Regev, Haim, 1995. "The production and cost structure of Israeli industry Evidence from individual firm data," Journal of Econometrics, Elsevier, vol. 65(1), pages 45-81, January.
- Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, vol. 58(4), pages 929-50, July.
- Laumas, Prem S. & Williams, Martin, 1983. "An analysis of the demand for cash balances by the manufacturing firms in a developing economy," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 169-182.
- Wang, Ping & Yip, Chong K, 1992.
"Alternative Approaches to Money and Growth,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 24(4), pages 553-62, November.
- Tsiang, S C, 1977. "The Monetary Theoretic Foundation of the Modern Monetary Approach to the Balance of Payments," Oxford Economic Papers, Oxford University Press, vol. 29(3), pages 319-38, November.
- Bomberger, William A, 1993. "Income, Wealth, and Household Demand for Deposits," American Economic Review, American Economic Association, vol. 83(4), pages 1034-44, September.
- William J. Frazer & Jr., 1964. "The Financial Structure of Manufacturing Corporations and the Demand for Money: Some Empirical Findings," Journal of Political Economy, University of Chicago Press, vol. 72, pages 176.
- Nadiri, M Ishaq, 1969. "The Determinants of Real Cash Balances in the U.S. Total Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 83(2), pages 173-96, May.
When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:30:y:2008:i:1:p:523-542. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.