When Does Cash Matter? Evidence for Private Firms

Ehling, Paul; Haushalter, David

doi:10.2139/ssrn.2454015

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When Does Cash Matter? Evidence for Private Firms

Banco de Espana Working Paper No. 1412

60 Pages Posted: 17 Jun 2014

See all articles by Paul Ehling

David Haushalter

Pennsylvania State University - Mary Jean and Frank P. Smeal College of Business Administration

There are 2 versions of this paper

Date Written: June 17, 2014

Abstract

Using a database of more than 180,000 private companies from 2000 to 2009, we find that the benefits of holding more cash vary substantially with a firm’s size and the conditions it faces. Cash holdings matter most for small firms: when there are negative shocks to industry or macroeconomic conditions, a small firm’s cash holdings are positively associated with changes in its sales and assets. Cash is less important for other conditions. Differences in the benefits of cash holdings between large and small firms are traced to a firm’s ability – and willingness – to increase leverage when there is a cash shortfall.

Keywords: cash holdings, benefits of cash holdings, private companies

JEL Classification: G30, G32, G35

Suggested Citation: Suggested Citation

Ehling, Paul and Haushalter, David, When Does Cash Matter? Evidence for Private Firms (June 17, 2014). Banco de Espana Working Paper No. 1412, Available at SSRN: https://ssrn.com/abstract=2454015 or http://dx.doi.org/10.2139/ssrn.2454015