All You Need is Cash: Corporate Cash Holdings and Investment after the Global Financial Crisis

54 Pages Posted: 5 May 2021

See all articles by Andreas Joseph

Andreas Joseph

Bank of England

Christiane Kneer

Bank of England

Neeltje van Horen

Bank of England; Centre for Economic Policy Research (CEPR)

Date Written: 2021

Abstract

Cash holdings at the onset of a financial crisis are a key determinant of investment by SMEs not only during the crisis but also during the recovery period. Cash-rich SMEs could maintain their capital stock during the global financial crisis, while cash-poor rivals reduced theirs. This gave cash-rich SMEs a competitive advantage during the recovery, resulting in a persistent and growing investment gap. The amplification effect was present for SMEs with both volatile and stable cash holdings and was particularly pronounced for younger and smaller firms. Competition dynamics and borrowing constraints seem to drive this amplification effect.

JEL Classification: D220, E320, E440, G320

Suggested Citation

Joseph, Andreas and Kneer, Christiane and van Horen, Neeltje, All You Need is Cash: Corporate Cash Holdings and Investment after the Global Financial Crisis (2021). CESifo Working Paper No. 9053, Available at SSRN: https://ssrn.com/abstract=3839926 or http://dx.doi.org/10.2139/ssrn.3839926

Andreas Joseph (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Christiane Kneer

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Neeltje Van Horen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://www.bankofengland.co.uk/research/Researchers/neeltje-van-horen

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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