Asymmetric Modelling of the Adjustment Speed of Cash Holdings

37 Pages Posted: 10 Feb 2017

See all articles by Yanhao Chang

Yanhao Chang

University of Queensland

Karen L. Benson

University of Queensland - Business School; Financial Research Network (FIRN)

Robert W. Faff

University of Queensland

Date Written: February 10, 2017

Abstract

This study examines the adjustment speed of cash holdings. Our sample comprises all nonfinancial firms listed on the NYSE, over a period from 1962 to 2014. We employ a multi-faceted empirical strategy including: (1) a dummy variable approach; (2) a cubic model; (3) a threshold regression model. Our core findings show that there exists an optimal range of cash holdings where firms optimally allow it to deviate from the theoretical cash target. Moreover, we provide evidence that speedy cash adjustment will occur if firms go outside the optimal cash range. We also confirm that cash adjustment is not only partial but also asymmetric, in the sense that cash-rich firms make speedier cash adjustment than cash-poor firms.

Keywords: Cash holdings,Cash adjustment speed,Optimal range of cash holdings

Suggested Citation

Chang, Yanhao and Benson, Karen L. and Faff, Robert W., Asymmetric Modelling of the Adjustment Speed of Cash Holdings (February 10, 2017). Asian Finance Association (AsianFA) 2017 Conference. Available at SSRN: https://ssrn.com/abstract=2914986 or http://dx.doi.org/10.2139/ssrn.2914986

Yanhao Chang (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Karen L. Benson

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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