The Marginal Value of Cash, Cash Flow Sensitivities, and Bank-Finance Shocks in Nonlisted Firms

59 Pages Posted: 14 Mar 2011

See all articles by Charlotte Ostergaard

Charlotte Ostergaard

Copenhagen Business School; European Corporate Governance Institute (ECGI); BI Norwegian Business School, Department of Finance

Amir Sasson

BI Norwegian Business School

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2011

Abstract

We study how nonlisted firms trade off financial, real, and distributive uses of cash. We show that firms' marginal value of cash (MVC) affects the mix of external and internal finance used to absorb fluctuations in cash flows; in particular, high-MVC firms employ substantially more external finance on the margin. Linking firms to their main bank, we find that shocks to bank finance affect firms' trade-offs and have real effects in high-MVC firms, making investment more sensitive to firm cash flow. Our analysis suggests that shocks to external financing costs are transmitted to the real economy via firms' marginal value of cash.

Keywords: Bank Lending Channel, Cash Flow Trade-offs, Cash Holdings, External Financing Costs, Nonlisted Firms

JEL Classification: G21, G32

Suggested Citation

Ostergaard, Charlotte and Sasson, Amir and Sorensen, Bent E., The Marginal Value of Cash, Cash Flow Sensitivities, and Bank-Finance Shocks in Nonlisted Firms (March 2011). CEPR Discussion Paper No. DP8278, Available at SSRN: https://ssrn.com/abstract=1782572

Charlotte Ostergaard (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

BI Norwegian Business School, Department of Finance ( email )

Nydalsveien 37
Oslo, 0442
Norway
+4746410520 (Phone)

HOME PAGE: http://home.bi.no/charlotte.ostergaard/

Amir Sasson

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
+47 46410621 (Phone)

Bent E. Sorensen

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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