Cash Savings and Capital Markets

46 Pages Posted: 7 Dec 2011 Last revised: 19 Feb 2018

See all articles by R. David McLean

R. David McLean

Georgetown University - Department of Finance

Mengxin Zhao

Securities and Exchange Commission (SEC)

Date Written: February 17, 2018


Previous studies find that U.S. firms make large equity issues when stock prices are high for the purpose of building precautionary cash savings. We find these effects internationally, but only in countries where it is less costly to issue equity. In countries where external finance is costlier, high precautionary motive firms do not build cash with equity issues, suggesting the benefits of building cash via external finance are outweighed by issuance costs. These effects are economically important; the previously documented relation between precautionary motives and cash savings is no longer significant if the proceeds from net equity issues are removed from cash. Our findings show that capital market development has a first order impact on cash policy.

Keywords: market timing, cash savings, precautionary motives, hedging, financial development, investor protection

JEL Classification: G15, G18, G31, G38

Suggested Citation

McLean, R. David and Zhao, Mengxin, Cash Savings and Capital Markets (February 17, 2018). Journal of Empirical Finance, Forthcoming. Available at SSRN: or

R. David McLean (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC Washington DC 20057
United States

Mengxin Zhao

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

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