Cash Reserves as a Hedge Against Supply-Chain Risk

66 Pages Posted: 6 Feb 2014 Last revised: 7 Apr 2017

See all articles by Manoj Kulchania

Manoj Kulchania

Wayne State University - Finance Group

Shawn Thomas

University of Pittsburgh - Katz Graduate School of Business

Date Written: March 29, 2017

Abstract

Deregulation of the trucking industry and significantly lowered transportation costs led to large, widespread, and plausibly exogenous reductions in inventory for U.S. firms, but with consequent increased supply chain disruption costs. We find evidence that increased supply chain disruption costs help explain the puzzling long-term trend of increasing average U.S. firm cash holdings. We also find that firms facing higher expected costs of disruptions generally save more cash from capital freed-up via supply chain management innovations. Finally, we document significant post-disruption declines in cash holdings consistent with cash as a primary source of financing during disruptions.

Keywords: Inventory, Cash, Supply chain disruption

JEL Classification: G31, G32

Suggested Citation

Kulchania, Manoj and Thomas, Shawn, Cash Reserves as a Hedge Against Supply-Chain Risk (March 29, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2391193 or http://dx.doi.org/10.2139/ssrn.2391193

Manoj Kulchania

Wayne State University - Finance Group ( email )

2771 Woodward Ave
Detroit, MI 48201
United States
313-577-7837 (Phone)

HOME PAGE: http://ilitchbusiness.wayne.edu/profile/fr3472

Shawn Thomas (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

246 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1648 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~shthomas/index.htm

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