Cost of Carry, Financial Constraints, and the Dynamics of Corporate Cash Holdings

55 Pages Posted: 17 Oct 2019

See all articles by Ruhollah Eskandari

Ruhollah Eskandari

University of York

Morteza Zamanian

Amirkabir University of Technology

Date Written: August 22, 2019

Abstract

This paper provides new evidence on the link between financial constraints and corporate cash policy. Using time-series data for US public and private manufacturing firms, we find negative correlation between cash holdings and cost-of-carry for large firms. We find no evidence of such a relation for small firms. We also perform a firm-level analysis supporting our time-series results that unconstrained firms have a propensity to adjust cash when cost-of-carry changes, whereas constrained firms do not exhibit this propensity. We provide a basic model predicting changes in the cost-of-carry drive variations in optimal cash holdings, considerably more for financially unconstrained firms.

Keywords: Financial Constraints, Dynamics of Corporate Cash Holdings, Cost of Carry

JEL Classification: G30, G32, E41

Suggested Citation

Eskandari, Ruhollah and Zamanian, Morteza, Cost of Carry, Financial Constraints, and the Dynamics of Corporate Cash Holdings (August 22, 2019). Available at SSRN: https://ssrn.com/abstract=3466188 or http://dx.doi.org/10.2139/ssrn.3466188

Ruhollah Eskandari (Contact Author)

University of York ( email )

Heslington
University of York
York, YO10 5DD
United Kingdom

Morteza Zamanian

Amirkabir University of Technology ( email )

P.O. Box 15875-4413
Tehran
Iran

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