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Who holds cash? and why?

  • Calvin Schnure
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    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.

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    File URL: http://www.federalreserve.gov/pubs/feds/1998/199813/199813abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/1998/199813/199813pap.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1998-13.

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    Date of creation: 1998
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    Handle: RePEc:fip:fedgfe:1998-13
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    1. Barr, David G & Cuthbertson, Keith, 1992. "Company Sector Liquid Asset Holdings: A Systems Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 83-97, February.
    2. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
    3. Gilchrist, S. & Himmelberg, C.P., 1995. "Evidence on the Role of Cash Flow for Investment," Papers 95-29, Columbia - Graduate School of Business.
    4. 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.
    5. 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.
    6. 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.).
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