Abstract

http://ssrn.com/abstract=608664
 
 

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Cash Holdings and Business Conditions


Miguel A. Ferreira


Nova School of Business and Economics; European Corporate Governance Institute (ECGI)

Claudia Custodio


Arizona State University - W. P. Carey School of Business

Clara C. Raposo


Technical University of Lisbon (UTL) - School of Economics and Management

February 2005


Abstract:     
We investigate the relation between business conditions and corporate liquidity decisions by US firms. We find strong evidence that financially constrained firms hold more cash during recessions and that business conditions are significant to constrained firms' cash decisions. In contrast, we find weak evidence that financially unconstrained firms adjust cash holdings according to the business cycle. This asymmetric behavior is more pronounced for changes in the short-term interest rate. Moreover, we find that firms increase the level of liquidity during periods of tighter credit conditions. Our findings support both the precautionary motive for holding cash and the pecking order theory.

Number of Pages in PDF File: 43

Keywords: Cash holdings, Liquidity, Business conditions

JEL Classification: G3, G32, G39

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Date posted: October 25, 2004  

Suggested Citation

Ferreira, Miguel A. and Custodio, Claudia and Raposo, Clara C., Cash Holdings and Business Conditions (February 2005). Available at SSRN: http://ssrn.com/abstract=608664 or http://dx.doi.org/10.2139/ssrn.608664

Contact Information

Miguel Almeida Ferreira (Contact Author)
Nova School of Business and Economics ( email )
Campus de Campolide
Lisbon, 1099-032
Portugal
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Claudia Custodio
Arizona State University - W. P. Carey School of Business ( email )
W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
480-965-8074 (Phone)
480-965-8539 (Fax)
HOME PAGE: http://www.public.asu.edu/~cpcustod/
Clara C. Raposo
Technical University of Lisbon (UTL) - School of Economics and Management ( email )
R. Miguel Lupi, 20
Lisbon, 1200
Portugal
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