Measuring the Value of Corporate Cash Holdings against Predictable and Unpredictable Negative Shocks

48 Pages Posted: 29 Apr 2021

See all articles by Keiichi Hori

Keiichi Hori

Kwansei Gakuin University - School of Economics

Kohei Aono

Ritsumeikan University - Faculty of Economics

Date Written: April 21, 2021

Abstract

This paper explores how cash mitigates predictable and unpredictable adverse cash flow shocks to firms using the financial data of Japanese firms. We find that (i) cash has no value after the predicted shock regardless of the severity of the financial constraint, (ii) after the unpredicted shock, the value of cash for the financially constrained firms is larger than that for the unconstrained firms, and (iii) the value of cash is similar between the two shocks for the unconstrained firms, while the value is larger when the unpredicted shock occurs than when the predicted shock occurs for the constrained firms.

Keywords: consumption tax hike, COVID-19, cash holdings, financial constraint, event study

JEL Classification: G14, G32

Suggested Citation

Hori, Keiichi and Aono, Kohei, Measuring the Value of Corporate Cash Holdings against Predictable and Unpredictable Negative Shocks (April 21, 2021). Available at SSRN: https://ssrn.com/abstract=3836634 or http://dx.doi.org/10.2139/ssrn.3836634

Keiichi Hori (Contact Author)

Kwansei Gakuin University - School of Economics ( email )

Uegahara, Nishinomiya 662-850
Japan

HOME PAGE: http://www.eonet.ne.jp/~khori/

Kohei Aono

Ritsumeikan University - Faculty of Economics ( email )

1-1-1 Noji-Higashi
Kusatsu, Shiga 525-8577, Siga 525-8577
Japan

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