IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/20965.html

What Drives Corporate Savings

Author

Listed:
  • Chen, Nan
  • Giroud, Xavier
  • Qin, Ling
  • Wang, Neng

Abstract

We study the determinants of corporate cash holdings by extending the standard q theory of investment with financing frictions and productivity shocks. While existing models predict a low propensity to hold cash, we show that realistic cash holdings arise only when three ingredients are combined: 1.) costly external financing, 2.) persistent productivity shocks, and 3.) contemporaneous productivity shocks. With costly external financing, persistent productivity shocks generate predictable cash flows and investment opportunities, but yield little need for savings since the internally generated cash flows are aligned with the investment needs. Contemporaneous shocks make internally generated cash flows random, inducing firms to hold cash at levels consistent with those observed empirically.

Suggested Citation

  • Chen, Nan & Giroud, Xavier & Qin, Ling & Wang, Neng, 2025. "What Drives Corporate Savings," CEPR Discussion Papers 20965, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20965
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP20965
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:20965. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.