Corporate Life-Cycle Dynamics of Cash Holdings

39 Pages Posted: 15 Mar 2015 Last revised: 28 Jul 2016

See all articles by Wolfgang Drobetz

Wolfgang Drobetz

Hamburg University

Michael Halling

Stockholm School of Economics & Swedish House of Finance

Henning Schröder

University of Hamburg

Date Written: March 14, 2015


This paper shows that the corporate life-cycle is an important dimension for the dynamics and valuations of cash holdings. Our results indicate that firms’ cash policies are markedly interacted with their strategy choices. While firms in early stages and post-maturity stages hold large amounts of cash, cash ratios decrease when firms move towards maturity. Much of this variation in cash holdings is attributable to a changing demand function for cash over the different life-cycle stages. Trade-off and pecking order motives are of different importance for cash policies dependent on a firm’s life-cycle stage. An additional dollar in cash is highly valuable for introduction and growth firms, while a dollar in cash adds, on average, less than a dollar in market value for firms in later life-cycle stages, most likely due to increasing agency problems. Most of the dynamics in cash holdings are observed at life-cycle transition points rather than during the different life-cycle stages. Finally, the secular trend in cash holdings seems strongly attributable to increases in cash in the introduction and the decline stage.

Keywords: Corporate life-cycle, cash holdings, value of cash

JEL Classification: G30, G32, M10

Suggested Citation

Drobetz, Wolfgang and Halling, Michael and Schröder, Henning, Corporate Life-Cycle Dynamics of Cash Holdings (March 14, 2015). Swedish House of Finance Research Paper No. 15-07; 28th Australasian Finance and Banking Conference. Available at SSRN: or

Wolfgang Drobetz

Hamburg University ( email )

Moorweidenstrasse 18
Hamburg, 20148

Michael Halling (Contact Author)

Stockholm School of Economics & Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm

Henning Schröder

University of Hamburg ( email )

Moorweidenstraße 18
Hamburg, 20148
+49 (0)40 42838 6537 (Phone)


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