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Cash Holdings, Market Frictions and Monetary Policy: An Investigation of Increase in Cash Holdings

56 Pages Posted: 4 Jun 2012 Last revised: 19 Jul 2017

Ashraf Al Zaman

Saint Mary's University, Canada - Sobey School of Business

Date Written: June 4, 2011

Abstract

We investigate the secular increase in the corporate cash holding over the period 1980-2006. We show that along with firm characteristic–related variables, monetary policy and banking structure have a significant bearing on corporate cash holdings, as they determine the opportunity cost of holding cash as well as access to cash. Specifically, we establish that the need to hold cash was complemented by the ability to hold cash during the given period due to low opportunity cost. We also investigate the role of cash as collateral for financially constrained firms. Our findings allow us to provide insight into the cross-sectional variation.

Keywords: Bank loan, Cash holding, Interest rate, Monetary policy, Option value

JEL Classification: G00, G21, G30, G32, M10, M14

Suggested Citation

Zaman, Ashraf Al, Cash Holdings, Market Frictions and Monetary Policy: An Investigation of Increase in Cash Holdings (June 4, 2011). Available at SSRN: https://ssrn.com/abstract=2076414 or http://dx.doi.org/10.2139/ssrn.2076414

Ashraf Al Zaman (Contact Author)

Saint Mary's University, Canada - Sobey School of Business ( email )

Sobey Building 311
923 Robie Street
Halifax, Nova Scotia B3H 3C3
Canada

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