Corporate Cash and Employment

50 Pages Posted: 14 Feb 2014

See all articles by Philippe Bacchetta

Philippe Bacchetta

University of Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Kenza Benhima

University of Lausanne

Céline Poilly

University of Lausanne

Multiple version iconThere are 2 versions of this paper

Date Written: January 27, 2014


In the aftermath of the U.S. financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on U.S. data, we document that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash in their production process. We analyze the dynamic impact of aggregate shocks and the cross-…firm impact of idiosyncratic shocks. We show that liquidity and productivity shocks tend to generate a negative comovement between the cash ratio and employment. In contrast, standard credit shocks produce a positive relationship. A calibrated version of the model yields a negative comovement that is close to the data.

Keywords: working capital, liquidity shocks, cash management

JEL Classification: E44, G32, E24

Suggested Citation

Bacchetta, Philippe and Benhima, Kenza and Poilly, Céline, Corporate Cash and Employment (January 27, 2014). Swiss Finance Institute Research Paper No. 14-01, Available at SSRN: or

Philippe Bacchetta (Contact Author)

University of Lausanne ( email )

Faculty of Business and Economics
Internef 523
1015 Lausanne


Centre for Economic Policy Research (CEPR)

United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Kenza Benhima

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015

Céline Poilly

University of Lausanne ( email )

Quartier Chambronne

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