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Who holds cash? and why?

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  • Calvin Schnure

Abstract

Cash holdings of nonfinancial firms range widely, and are related to firm size, industry and access to the public bond market. Cash holdings are positively correlated with agency proxies, suggesting that firms that cannot borrow easily due to agency problems hold greater cash stocks--perhaps as a cushion to prevent shortfalls in cash flow from impinging on investment. However, this correlation holds only for the very highest cash holders, especially small firms. The group of afflicted firms appears to be less than one-quarter of COMPUSTAT firms. Agency proxies are irrelevant for a large majority of firms.

Suggested Citation

  • Calvin Schnure, 1998. "Who holds cash? and why?," Finance and Economics Discussion Series 1998-13, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:1998-13
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Christian Calmès, 2004. "Financial Market Imperfection, Overinvestment,and Speculative Precaution," Staff Working Papers 04-27, Bank of Canada.

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    Keywords

    Cash management; Cash flow;

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