Why Do U.S. Firms Hold So Much More Cash than They Used To?

Why Do U.S. Firms Hold So Much More Cash than They Used To? ABSTRACT The average cash‐to‐assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Why Do U.S. Firms Hold So Much More Cash than They Used To?

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
© American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/j.1540-6261.2009.01492.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT The average cash‐to‐assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.

Journal

The Journal of FinanceWiley

Published: Oct 1, 2009

References

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