Asymmetric Modelling of the Adjustment Speed of Cash Holdings
37 Pages Posted: 10 Feb 2017
Date Written: February 10, 2017
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: Suggested Citation