The Effects of Industry-Level Uncertainty on Cash Holdings: The Case of Germany
This paper investigates the link between the optimal level of non-financial firms' liquid assets and industry-level uncertainty. We develop a structural model of a firm's value maximization problem that predicts that as industry-level uncertainty increases the firm will increase its optimal level of liquidity. We test this hypothesis using a panel of German firms drawn from the Bundesbank's balance sheet database and show that greater uncertainty at the industry level causes firms to increase their cash holdings. The strength of these effects differ among subsamples of the firms with different characteristics.
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Postal: Mohrenstraße 58, D-10117 Berlin|
Web page: http://www.diw.de/en
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.:
- Ciaran Driver & Paul Temple & Giovanni Urga, 2005. "Profitability, capacity, and uncertainty: a model of UK manufacturing investment," Oxford Economic Papers, Oxford University Press, vol. 57(1), pages 120-141, January.
- Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Dittmar, Amy & Mahrt-Smith, Jan & Servaes, Henri, 2003. "International Corporate Governance and Corporate Cash Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 111-133, March.
- Blundell, R. & Bond, S., 1995.
"Initial Conditions and Moment Restrictions in Dynamic Panel Data Models,"
104, Economics Group, Nuffield College, University of Oxford.
- Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
- Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
- R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- 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.
- Joseph P. Byrne & E. Philip Davis, 2005.
"Investment and Uncertainty in the G7,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(1), pages 1-32, April.
- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
- Tim Opler & Lee Pinkowitz & Rene Stulz & Rohan Williamson, 1997.
"The Determinants and Implications of Corporate Cash Holdings,"
NBER Working Papers
6234, National Bureau of Economic Research, Inc.
- Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
- Hong Bo & Robert Lensin, 2005. "Is the Investment-Uncertainty Relationship Nonlinear? An Empirical Analysis for the Netherlands," Economica, London School of Economics and Political Science, vol. 72(286), pages 307-331, 05.
- A. Bruinshoofd & C.J.M. Kool, 2004.
"Dutch Corporate Liquidity Management: New Evidence on Aggregation,"
04-05, Utrecht School of Economics.
- W. Allard Bruinshoofd & Clemens J. M. Kool, 2004. "Dutch corporate liquidity mangement: New evidence on aggregation," Journal of Applied Economics, Universidad del CEMA, vol. 7, pages 195-230, November.
- W.A. Bruinshoofd & C.J.M. Kool, 2004. "Dutch corporate liquidity management: new evidence on aggregation," WO Research Memoranda (discontinued) 756, Netherlands Central Bank, Research Department.
- Vivek Ghosal & Prakash Loungani, 2000. "The Differential Impact of Uncertainty on Investment in Small and Large Businesses," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 338-343, May.
- Alfonsina Iona & Leone Leonida & Aydin Ozkan, . "Determinants of Financial Conservatism: Evidence from Low-Leverage and Cash-Rich UK Firms," Discussion Papers 04/01, Department of Economics, University of York.
- von Kalckreuth, Ulf, 2000.
"Exploring the role of uncertainty for corporate investment decisions in Germany,"
Discussion Paper Series 1: Economic Studies
2000,05, Deutsche Bundesbank, Research Centre.
- Ulf von Kalckreuth, 2003. "Exploring the role of uncertainty for corporate investment decisions in Germany," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 173-206, June.
- Toni M. Whited, 1990.
"Debt, liquidity constraints, and corporate investment: evidence from panel data,"
Finance and Economics Discussion Series
114, Board of Governors of the Federal Reserve System (U.S.).
- Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-60, September.
- Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan & Oleksandr Talavera, 2002.
"The Impact of Macroeconomic Uncertainty on Non-Financial Firms' Demand for Liquidity,"
Boston College Working Papers in Economics
552, Boston College Department of Economics, revised 15 Dec 2005.
- Baum, Christopher F. & Caglayan, Mustafa & Ozkan, Neslihan & Talavera, Oleksandr, 2006. "The impact of macroeconomic uncertainty on non-financial firms' demand for liquidity," Review of Financial Economics, Elsevier, vol. 15(4), pages 289-304.
- Andrew Blake, 1999. "An Artificial Neural Network System of Leading Indicators," NIESR Discussion Papers 144, National Institute of Economic and Social Research.
- Driver, Ciaran & Paul Temple & Giovanni Urga, 2002. "Profitability, Capacity, and Uncertainty: A Robust Model of UK Manufacturing Investment," Royal Economic Society Annual Conference 2002 66, Royal Economic Society.
- R. Glenn Hubbard & Anil K. Kashyap, 1991.
"Internal net worth and the investment process: an application to U.S. agriculture,"
Working Paper Series, Macroeconomic Issues
91-27, Federal Reserve Bank of Chicago.
- Hubbard, R Glenn & Kashyap, Anil K, 1992. "Internal Net Worth and the Investment Process: An Application to U.S. Agriculture," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 506-34, June.
- R. Glenn Hubbard & Anil Kashyap, 1990. "Internal Net Worth and the Investment Process: An Application to U.S. Agriculture," NBER Working Papers 3339, National Bureau of Economic Research, Inc.
- R. Glenn Hubbard & Anil K. Kashyap, 1990. "Internal net worth and the investment process: an application to U.S. agriculture," Finance and Economics Discussion Series 124, Board of Governors of the Federal Reserve System (U.S.).
- Hartman, Richard, 1976. "Factor Demand with Output Price Uncertainty," American Economic Review, American Economic Association, vol. 66(4), pages 675-81, September.
- Heitor Almeida & Murillo Campello & Michael S. Weisbach, 2004. "The Cash Flow Sensitivity of Cash," Journal of Finance, American Finance Association, vol. 59(4), pages 1777-1804, 08.
- Simon Gilchrist & Charles Himmelberg, 1999.
"Investment: Fundamentals and Finance,"
in: NBER Macroeconomics Annual 1998, volume 13, pages 223-274
National Bureau of Economic Research, Inc.
- Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
- 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.
When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp638. 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: (Bibliothek)
If references are entirely missing, you can add them using this form.