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Comparing the Cash Policies of Public and Private Firms

Joan Farre-Mensa

Harvard Business School

October 1, 2014

I document that the cash-to-assets ratio of public U.S. firms is on average over ten percentage points higher than that of privately held firms. This difference is not uniform: While precautionary motives lead smaller and riskier public firms to have higher cash holdings than larger and safer ones, I find that private firms have little demand for precautionary cash, regardless of their size or risk. As a result, the cash gap between public and private firms is decreasing in firm size and increasing in firm risk. My results suggest that differences in the extent to which public and private firms are subject to misvaluation shocks and engage in market timing in response to these shocks are a key driver of public firms' higher demand for precautionary cash.

Number of Pages in PDF File: 71

Keywords: Private companies; Corporate cash hoarding; Precautionary motives; Market timing; Share issuance; IPOs

JEL Classification: G32; L26; D22

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Date posted: December 6, 2010 ; Last revised: October 2, 2014

Suggested Citation

Farre-Mensa, Joan, Comparing the Cash Policies of Public and Private Firms (October 1, 2014). Available at SSRN: http://ssrn.com/abstract=1719204 or http://dx.doi.org/10.2139/ssrn.1719204

Contact Information

Joan Farre-Mensa (Contact Author)
Harvard Business School ( email )
Rock Center 218
Soldiers Field Road
Boston, MA 02163
United States
617-495-6963 (Phone)
HOME PAGE: http://people.hbs.edu/jfarremensa
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