What Drives Corporate Liquidity? An International Survey of Cash Holdings and Lines of Credit

46 Pages Posted: 20 Mar 2007 Last revised: 23 Nov 2008

See all articles by Karl V. Lins

Karl V. Lins

University of Utah - Department of Finance

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Peter Tufano

University of Oxford - Said Business School; National Bureau of Economic Research (NBER); University of Oxford - Said Business School

Date Written: November 1, 2008

Abstract

We survey CFOs of public and private firms in 29 countries about aspects of corporate liquidity that cannot be obtained from publicly available data. We find that lines of credit are very important liquidity instruments relative to cash holdings. The median line of credit is equal to 15 percent of book assets whereas cash holdings comprise only 9 percent of book assets. Of these cash holdings, the fraction held as non-operational cash (rather than held for day-to-day operations) is only about 40% of the total. Cash and lines of credit are held for different purposes. Lines of credit, which represent options on liquidity, are strongly related to a firm's need for external financing to fund future investment opportunities. Non-operational cash, which constitutes realized liquidity, is not related to future external financing needs and is primarily held as a general buffer against future cash shortfalls. Across countries, firms make greater use of lines of credit, but not excess cash, when external credit markets are poorly developed.

Keywords: corporate liquidity, line of credit, cash holdings, investor protection

JEL Classification: G31, G32, G35

Suggested Citation

Lins, Karl V. and Servaes, Henri and Tufano, Peter, What Drives Corporate Liquidity? An International Survey of Cash Holdings and Lines of Credit (November 1, 2008). AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=971178 or http://dx.doi.org/10.2139/ssrn.971178

Karl V. Lins (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-3171 (Phone)
801-581-7214 (Fax)

Henri Servaes

London Business School ( email )

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London NW1 4SA
United Kingdom
+44 20 7000 8268 (Phone)
+44 20 7000 8201 (Fax)

HOME PAGE: http://faculty.london.edu/hservaes/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Peter Tufano

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288551 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288551 (Phone)

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