Keywords: Cash flow, cash stocks
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.
Full paper (1640 KB PDF)
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Last update: March 25, 1998