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Why are U.S. firms holding so much cash? an exploration of cross-sectional variation

Author

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  • Juan M. Sánchez
  • Emircan Yurdagul

Abstract

Currently U.S. firms hold record amounts of cash. The authors explore cross-sectional variation in cash holdings of U.S. publicly traded firms to shed light on the reasons for this recent trend. First, they identify factors that correlate with cash holdings and then examine the evolution of these factors over the past decade. Several factors, including research and development expenditures and idiosyncratic uncertainty, are important in accounting for cross-sectional differences in cash holdings. However, these factors do not increase over time as cash holdings do; thus, it seems unlikely that they underlie the increase in cash holdings. Aggregate uncertainty, however, has recently reached record levels. This uncertainty, combined with the fact that (idiosyncratic) uncertainty correlates well with cash holdings in the cross section of firms, suggests aggregate uncertainty may be an important factor accounting for the recent trend in increased cash holdings.

Suggested Citation

  • Juan M. Sánchez & Emircan Yurdagul, 2013. "Why are U.S. firms holding so much cash? an exploration of cross-sectional variation," Review, Federal Reserve Bank of St. Louis, issue July, pages 293-325.
  • Handle: RePEc:fip:fedlrv:y:2013:i:july:p:293-325:n:v.95no.4
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    References listed on IDEAS

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    1. Lee Pinkowitz & René M. Stulz & Rohan Williamson, 2012. "Multinationals and the High Cash Holdings Puzzle," NBER Working Papers 18120, National Bureau of Economic Research, Inc.
    2. Diego Comin & Sunil Mulani, 2003. "Diverging Trends in Macro and Micro Volatility: Facts," Macroeconomics 0306008, EconWPA.
    3. Carol Corrado & John Haltiwanger & Dan Sichel, 2005. "Measuring Capital in the New Economy," NBER Books, National Bureau of Economic Research, Inc, number corr05-1, June.
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    Cited by:

    1. Guillaume Rocheteau & Randall Wright & Cathy Zhang, 2018. "Corporate Finance and Monetary Policy," American Economic Review, American Economic Association, vol. 108(4-5), pages 1147-1186, April.

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    Keywords

    Cash management;

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