Abstract

http://ssrn.com/abstract=1975491
 
 

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Why Has the Value of Cash Increased Over Time?


Thomas W. Bates


Arizona State University - Department of Finance

Chinghung (Henry) Chang


National Taiwan University - College of Management

Jianxin Daniel Chi


University of Nevada, Las Vegas (UNLV) - Department of Finance

July 30, 2016


Abstract:     
The value of corporate cash holdings has increased significantly in recent decades. On average, one dollar of cash is valued at $0.61 in the 1980s, $1.04 in the 1990s, and $1.12 in the 2000s. This increase is predominantly driven by the investment opportunity set and cash-flow volatility, as well as secular trends in product market competition, credit market risk, and within-firm diversification. We document a secular decrease in the speed of adjustment in cash holdings, particularly for financially constrained firms with cash deficits, suggesting that capital market frictions can account for the trend in the value of cash holdings.

Number of Pages in PDF File: 57

Keywords: Cash Holdings; Value of Cash; Financing Frictions; Speed of Adjustment; Agency Conflicts

JEL Classification: G30, G32, G34, G35


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Date posted: December 23, 2011 ; Last revised: July 31, 2016

Suggested Citation

Bates, Thomas W. and Chang, Chinghung (Henry) and Chi, Jianxin Daniel, Why Has the Value of Cash Increased Over Time? (July 30, 2016). Available at SSRN: http://ssrn.com/abstract=1975491 or http://dx.doi.org/10.2139/ssrn.1975491

Contact Information

Thomas W. Bates
Arizona State University - Department of Finance ( email )
W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
Ching-Hung Chang
National Taiwan University - College of Management ( email )
Department and Graduate Institute of Finance
College of Management
Taipei 106
Taiwan
Jianxin Daniel Chi (Contact Author)
University of Nevada, Las Vegas (UNLV) - Department of Finance ( email )
4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States
HOME PAGE: http://sites.google.com/site/jdanielchi/
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