Cash Regimes and the Marginal Value of Cash
53 Pages Posted: 14 Apr 2016 Last revised: 7 Feb 2017
Date Written: February 6, 2017
Despite theoretical predictions of the importance of cash regimes, most existing studies fail to account for them in estimations of the marginal value of cash (MVC). Many such studies report MVC estimates that conflict with theoretical predictions. We consider the effects of cash regimes on estimates of MVC. We propose ex post regime classification that aligns MVC estimates with theoretical predictions. Our classification renders the effects of financial constraints on MVC insignificant. None of four other MVC determinants established by existing studies are robust to accounting for cash regimes. This paper reaffirms the importance of cash regimes in determining MVC.
Keywords: Cash; cash policies; value of cash; financial constraints
JEL Classification: G32, G34
Suggested Citation: Suggested Citation