Corporate Cash Holdings and Credit Line Usage

26 Pages Posted: 15 Nov 2016

See all articles by Martin Boileau

Martin Boileau

University of Colorado at Boulder - Department of Economics

Nathalie Moyen

University of Colorado at Boulder - Department of Finance

Date Written: November 2016

Abstract

We investigate the factors driving the unprecedented rise in corporate liquidities since the 1970s. We find that an economy‐wide reduction in the cost of holding liquidities and an increase in risk best explain the rise in cash holdings and the widespread use of credit lines. The structural estimation results shed light on two widely acknowledged motives for holding cash. The precautionary motive and the liquidity motive translate risk exposure into cash holdings. Our results, however, do not suggest that firms have become more prudent over time. It is higher liquidity needs that has forced firms to hold more cash and use more credit lines.

Suggested Citation

Boileau, Martin and Moyen, Nathalie, Corporate Cash Holdings and Credit Line Usage (November 2016). International Economic Review, Vol. 57, Issue 4, pp. 1481-1506, 2016. Available at SSRN: https://ssrn.com/abstract=2869498 or http://dx.doi.org/10.1111/iere.12205

Martin Boileau (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309-0256
United States
(303) 492-2108 (Phone)
(303) 492-8960 (Fax)

Nathalie Moyen

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States
303-735-4931 (Phone)
303-492-5962 (Fax)

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