Cash Accumulation by Non Financial Corporations: New Evidence of the Role of Hedging Needs and Lower Financing Costs in France[L’accumulation de liquidités par les sociétés non financières en France : l’effet des besoins de couverture et de la baisse des coûts de financement]

In this paper, we study the sources of the accumulation of cash by non‑financial corporations in France. We notably explore cost‑based explanations by proposing a firm‑specific measure of the cost of carrying cash that depends on both the firms' short‑term financing costs and the share of interest‑bearing assets among liquid financial assets. Our analysis suggests that at least one fourth of the rise in the cash ratios between 2011 and 2016 is explained by the decreasing trend in the cost of carrying cash. When factoring in the additional impact of macro economic developments, our costbased explanation accounts for up to 40% of the increase in cash holdings. We also identify a novel important determinant of the level of cash holdings: firms hold cash to seize future investment opportunities when they occur, irrespective of the financing conditions that will then prevail. Our results suggest that firms' cash hoarding to avoid foregone investment opportunities in downturns is an active economic stabilizer.