The Impact of Macroeconomic Uncertainty on Non-Financial Firms' Demand for Liquidity
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.
|Date of creation:||23 Dec 2002|
|Date of revision:||15 Dec 2005|
|Publication status:||Published, Review of Financial Economics, 15, 289-304, 2006.|
|Note:||Previously circulated as "The Impact of Macroeconomic Uncertainty on Cash Holdings for Non-Financial Firms"|
|Contact details of provider:|| Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA|
Web page: http://fmwww.bc.edu/EC/
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