Why Has the Value of Cash Increased Over Time?
Thomas W. Bates
Arizona State University - Department of Finance
Chinghung (Henry) Chang
National Taiwan University
Jianxin Daniel Chi
University of Nevada, Las Vegas (UNLV) - Department of Finance
December 15, 2011
The value of cash holdings by U.S. non-financial firms has increased significantly over the past three decades. An additional dollar of cash holdings is valued at $0.61 in the 1980s, $1.04 in the 1990s, and $1.12 in the 2000s. The increase in the value of cash obtains across a variety of firm characteristics, including firm size, the investment opportunity set, financial constraints, and the volatility of cash flow. The general increase in the value of cash can be partially explained by firms that IPO in the 1990s and the 2000s. However, for the 1990s, the increase in the value of cash is predominantly determined by a firm’s investment opportunity set and the volatility of its cash flow. For the 2000s, the increase in the value of cash is largely explained by credit market risk.
Number of Pages in PDF File: 49
Keywords: value, cash holdings, investment opportunities, cash flow volatility, credit market riskworking papers series
Date posted: December 23, 2011 ; Last revised: July 30, 2012
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