The Cash Flow Sensitivity of Cash: Replication, Extension, and Robustness

Fisher College of Business Working Paper No. 2021-03-002

Charles A. Dice Center Working Paper No. 2021-02

17 Pages Posted: 27 Jan 2021

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: January 25, 2021

Abstract

This paper reexamines the empirical evidence on the cash flow sensitivity of cash presented by Almeida, Campello, and Weisbach (2004). The original paper introduces a model in which financially constrained firms choose to save cash out of incremental cash flows but financially unconstrained do not. The authors find evidence consistent with this hypothesis on a sample of U.S. public firms between 1971 and 2000. This paper extends that analysis in a number of ways. In particular, it uses a larger sample covering the 1971–2019 window, considers a number of alternative definitions of financial constraints, and incorporates new methods and tests suggested by Welch (2020), Almeida, Campello, and Galvao (2010), and Grieser and Hadlock (2019). The original empirical findings are robust to these alternative specifications.

Keywords: Cash Flow Sensitivity of Cash, Financial Constraints, Cash Savings

JEL Classification: G30

Suggested Citation

Almeida, Heitor and Campello, Murillo and Weisbach, Michael S., The Cash Flow Sensitivity of Cash: Replication, Extension, and Robustness (January 25, 2021). Fisher College of Business Working Paper No. 2021-03-002, Charles A. Dice Center Working Paper No. 2021-02, Available at SSRN: https://ssrn.com/abstract=3773591 or http://dx.doi.org/10.2139/ssrn.3773591

Heitor Almeida

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)

HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
87
Abstract Views
271
rank
343,968
PlumX Metrics