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: |
Web page: http://fmwww.bc.edu/EC/
More information through EDIRC
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.:
- Kim, Chang-Soo & Mauer, David C. & Sherman, Ann E., 1998. "The Determinants of Corporate Liquidity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(03), pages 335-359, September.
- Ozkan, Aydin & Ozkan, Neslihan, 2004. "Corporate cash holdings: An empirical investigation of UK companies," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2103-2134, September.
- Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
- Mustafa Caglayan & Neslihan Ozkan & Christopher F Baum, 2002.
"The Impact of Macroeconomic Uncertainty on Bank Lending Behavior,"
2002_02, University of Liverpool Management School.
- Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2002. "The Impact of Macroeconomic Uncertainty on Bank Lending Behavior," Computing in Economics and Finance 2002 94, Society for Computational Economics.
- Frenkel, Jacob A & Jovanovic, Boyan, 1980.
"On Transactions and Precautionary Demand for Money,"
The Quarterly Journal of Economics,
MIT Press, vol. 95(1), pages 25-43, August.
- Jacob A. Frenkel & Boyan Jovanovic, 1978. "On Transactions and Precautionary Demand For Money," NBER Working Papers 0288, National Bureau of Economic Research, Inc.
- Paul Beaudry & Mustafa Caglayan & Fabio Schiantarelli, 2001.
"Monetary Instability, the Predictability of Prices, and the Allocation of Investment: An Empirical Investigation Using U.K. Panel Data,"
American Economic Review,
American Economic Association, vol. 91(3), pages 648-662, June.
- Paul Beaudry & Mustafa Caglayan & Fabio Schiantarelli, 1996. "Monetary Instability, the Predictability of Prices and the Allocation of Investment: An Empirical Investigation Using UK Panel Data," Boston College Working Papers in Economics 312., Boston College Department of Economics.
- Adrian Pagan, 1985.
"Two Stage and Related Estimators and Their Applications,"
Cowles Foundation Discussion Papers
741, Cowles Foundation for Research in Economics, Yale University.
- Pagan, Adrian, 1986. "Two Stage and Related Estimators and Their Applications," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 517-38, August.
- 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.
When requesting a correction, please mention this item's handle: RePEc:boc:bocoec:552. 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: (Christopher F Baum)
If references are entirely missing, you can add them using this form.