Cash Holdings and Risky Access to Future Credit
58 Pages Posted: 17 Jul 2017
Date Written: November 4, 2014
I quantify a new motive of holding cash through the channel of financing risk. I show that if the access to future credit is risky, firms may issue long-term debt now and save funds in cash to secure the current credit capacity for the future. I structurally estimate the model and find that this motive explains about 30% of cash holdings in the data. Counterfactual experiments indicate that the value of holding cash is around 8% of shareholder value.
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