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The impact of macroeconomic uncertainty on non-financial firms' demand for liquidity

Listed author(s):
  • Baum, Christopher F.
  • Caglayan, Mustafa
  • Ozkan, Neslihan
  • Talavera, Oleksandr

This paper empirically investigates whether changes in macroeconomic volatility affect the efficient allocation of non-financial firms' liquid assets. We argue that higher uncertainty will hamper managers' ability to accurately predict firm-specific information and induce them to implement similar cash management policies. Contrarily, when the macroeconomic environment becomes more tranquil, each manager will have the latitude to behave more idiosyncratically as she can adjust liquid assets based on the specific requirements of the firm, bringing about a more efficient allocation of liquid assets. Our empirical analysis provides support for these predictions.

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Article provided by Elsevier in its journal Review of Financial Economics.

Volume (Year): 15 (2006)
Issue (Month): 4 ()
Pages: 289-304

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Handle: RePEc:eee:revfin:v:15:y:2006:i:4:p:289-304
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620170

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  5. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2002. "Instrumental variables and GMM: Estimation and testing," United Kingdom Stata Users' Group Meetings 2003 02, Stata Users Group.
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  13. Christopher F Baum & Sylvia Hristakeva, 2001. "DENTON: Stata module to interpolate a flow or stock series from low-frequency totals via proportional Denton method," Statistical Software Components S422501, Boston College Department of Economics, revised 17 Jul 2014.
  14. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
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  17. Mustafa Caglayan & Neslihan Ozkan & Christopher F Baum, 2002. "The Impact of Macroeconomic Uncertainty on Bank Lending Behavior," Research Papers 2002_02, University of Liverpool Management School.
  18. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
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