Corporate Precautionary Savings: Evidence from the Recent Financial Crisis

39 Pages Posted: 23 Mar 2011 Last revised: 9 May 2015

See all articles by Zhenzhen Sun

Zhenzhen Sun

University of Massachusetts Dartmouth; University of Massachusetts Dartmouth

Yaping Wang

Peking University - Guanghua School of Management

Date Written: March 15, 2011

Abstract

This paper examines the effects of the recent financial crisis on corporate cash holdings and saving propensities. We find that on average, firms reduce their cash holdings in the first year of the crisis when the supply of external finance is tightened, and increase their holdings in cash from the third quarter of 2008 when the demand-side effects of the crisis are stronger. More importantly, we find that the positive cash flow sensitivities of cash are significantly stronger during the financial crisis. This effect is more pronounced in financially constrained firms and firms with a high precautionary motive. Our results suggest that firms tended to save more as a precautionary motive during the recent financial crisis.

Keywords: cash holdings, precautionary saving, financial crisis

JEL Classification: G32, G30

Suggested Citation

Sun, Zhenzhen and Wang, Yaping, Corporate Precautionary Savings: Evidence from the Recent Financial Crisis (March 15, 2011). Quarterly Review of Economics and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1787393 or http://dx.doi.org/10.2139/ssrn.1787393

Zhenzhen Sun (Contact Author)

University of Massachusetts Dartmouth ( email )

285 Old Westport Road
Dartmouth, MA 02747-2300
United States

University of Massachusetts Dartmouth ( email )

285 Old Westport Road
N Dartmouth, MA 02747-2300
United States

Yaping Wang

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China
8610-62768188 (Phone)

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