Abstract

https://ssrn.com/abstract=2367162
 


 



Can Changes in the Cost of Carry Explain the Dynamics of Corporate 'Cash' Holdings?


José Azar


University of Navarra, IESE Business School

Jean-François Kagy


Cornerstone Research

Martin C. Schmalz


University of Michigan, Stephen M. Ross School of Business

October 17, 2015

Review of Financial Studies, April 2016
Ross School of Business Working Paper No. 1216

Abstract:     
Firms until recently were effectively constrained to hold liquid assets in non-interest-bearing accounts. As a result, the cost of capital of firms' liquid assets portfolios exceeded the return, especially when the risk-free interest rate was high. The spread between cost and return is the cost of carry. Changes in the cost of carry explain the dynamics of corporate "cash" holdings both in the United States and abroad, and the level of cost of carry explains the level of liquid asset holdings across countries. We conclude that current US corporate cash holdings are not abnormal in a historical or international comparison.

Number of Pages in PDF File: 55

Keywords: corporate cash, cash hoarding, money demand

JEL Classification: G30, G32, E41, E44


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Date posted: December 14, 2013 ; Last revised: November 19, 2016

Suggested Citation

Azar, José and Kagy, Jean-François and Schmalz, Martin C., Can Changes in the Cost of Carry Explain the Dynamics of Corporate 'Cash' Holdings? (October 17, 2015). Review of Financial Studies, April 2016; Ross School of Business Working Paper No. 1216. Available at SSRN: https://ssrn.com/abstract=2367162 or http://dx.doi.org/10.2139/ssrn.2367162

Contact Information

José Azar
University of Navarra, IESE Business School ( email )
Avenida Pearson 21
Barcelona, 08034
Spain
Jean-François Kagy
Cornerstone Research ( email )
1000 El Camino Real
Menlo Park, CA 94025-4327
United States
Martin C. Schmalz (Contact Author)
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan St
R5456
Ann Arbor, MI 48109-1234
United States
7347630304 (Phone)
HOME PAGE: http://https://sites.google.com/site/martincschmalz/

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