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Corporate Cash and Employment

Author

Listed:
  • Philippe BACCHETTA

    (University of Lausanne and Swiss Finance Institute)

  • Kenza BENHIMA

    (University of Lausanne and CEPR)

  • Céline POILLY

    (University of Lausanne)

Abstract

In the aftermath of the U.S. financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on U.S. data, we document that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash in their production process and where financial shocks are made of both credit and liquidity shocks. We show that external liquidity shocks generate a negative comovement between the cash ratio and employment. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. With a calibrated version of the model, the model yields a negative comovement that is close to the data.

Suggested Citation

  • Philippe BACCHETTA & Kenza BENHIMA & Céline POILLY, 2014. "Corporate Cash and Employment," Swiss Finance Institute Research Paper Series 14-01, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1401
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    More about this item

    Keywords

    working capital; liquidity shocks; cash management;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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