The Financial Assets of Non-Financial Firms

Abstract

We construct a novel panel dataset to provide new evidence on how the largest nonfinancial firms manage the composition of their financial assets. Over the past decade, bond portfolios have grown to be at least as large as cash-like instruments, driven by the meteoric rise of corporate bond holdings. To shed light on the drivers of this growth, we conduct two event studies around the 2017 tax reform and the 2020 liquidity crisis. Our evidence suggests large firms often actively manage their financial portfolios in a way that reflects tax incentives and reach for yield as opposed to financial constraints.

Keywords: Superstar firms, corporate cash, corporate bonds, repatriation tax, liquidity management

JEL Classification: G32, G35, G11, E440