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Corporate Cash and Employment†

Corporate Cash and Employment† AbstractIn the aftermath of the US financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on US data, we argue that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash and external liquid funds in their production process. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. We show that external liquidity shocks generate a negative comovement between the cash ratio and employment, as documented in the data. (JEL E24, E32, G32, J23) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Corporate Cash and Employment†

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Publisher
American Economic Association
Copyright
Copyright © 2019 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20150191
Publisher site
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Abstract

AbstractIn the aftermath of the US financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on US data, we argue that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash and external liquid funds in their production process. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. We show that external liquidity shocks generate a negative comovement between the cash ratio and employment, as documented in the data. (JEL E24, E32, G32, J23)

Journal

American Economic Journal: Macroeconomics – American Economic Association

Published: Jul 1, 2019

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