The Determinants and Implications of Corporate Cash Holdings

54 Pages Posted: 14 Jul 2000 Last revised: 29 Feb 2012

See all articles by Tim C. Opler

Tim C. Opler

Credit Suisse First Boston

Lee Pinkowitz

Georgetown University - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Rohan Williamson

Georgetown University - McDonough School of Business

Date Written: October 1997

Abstract

We examine the determinants and implications of holdings of cash and marketable" securities by publicly traded U.S. firms in the 1971-1994 period. Firms with strong growth" opportunities and riskier cash flows hold relatively high ratios of cash to total assets. Firms" that have the greatest access to the capital markets (e.g. large firms and those with credit" ratings) tend to hold lower ratios of cash to total assets. These results are consistent with the" view that firms hold liquid assets to ensure that they will be able to keep investing when cash" flow is too low relative to planned investment and when outside funds are expensive. The" short run impact of excess cash on capital expenditures, acquisition spending and payouts to" shareholders is small. The main reason that firms experience large changes in excess cash is" the occurrence of operating losses. There is no evidence that risk management and cash" holdings are substitutes.

Suggested Citation

Opler, Tim C. and Pinkowitz, Lee Foster and Stulz, Rene M. and Williamson, Rohan G., The Determinants and Implications of Corporate Cash Holdings (October 1997). NBER Working Paper No. w6234. Available at SSRN: https://ssrn.com/abstract=225992

Tim C. Opler (Contact Author)

Credit Suisse First Boston ( email )

11 Madison Avenue
Investment Banking Div., 23rd Flr
New York, NY 10010
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(212) 328-5313 (Phone)
(212) 448-3410 (Fax)

Lee Foster Pinkowitz

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
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202-687-2689 (Phone)
202-687-4031 (Fax)

Rene M. Stulz

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Rohan G. Williamson

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

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