Cash Savings and Capital Markets
46 Pages Posted: 7 Dec 2011 Last revised: 19 Feb 2018
Date Written: February 17, 2018
Abstract
Previous studies find that U.S. firms make large equity issues when stock prices are high for the purpose of building precautionary cash savings. We find these effects internationally, but only in countries where it is less costly to issue equity. In countries where external finance is costlier, high precautionary motive firms do not build cash with equity issues, suggesting the benefits of building cash via external finance are outweighed by issuance costs. These effects are economically important; the previously documented relation between precautionary motives and cash savings is no longer significant if the proceeds from net equity issues are removed from cash. Our findings show that capital market development has a first order impact on cash policy.
Keywords: market timing, cash savings, precautionary motives, hedging, financial development, investor protection
JEL Classification: G15, G18, G31, G38
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Determinants and Implications of Corporate Cash Holdings
By Tim C. Opler, Lee Pinkowitz, ...
-
The Cash Flow Sensitivity of Cash
By Heitor Almeida, Murillo Campello, ...
-
Why Do U.S. Firms Hold so Much More Cash than They Used to?
By Thomas W. Bates, Kathleen M. Kahle, ...
-
Why Do U.S. Firms Hold so Much More Cash than They Used to?
By Thomas W. Bates, Kathleen M. Kahle, ...
-
Bank Lines of Credit in Corporate Finance: An Empirical Analysis
By Amir Sufi
-
Corporate Governance and Firm Cash Holdings
By Jarrad Harford, Sattar Mansi, ...
-
Corporate Financial Policy and the Value of Cash
By Michael W. Faulkender and Rong Wang
-
Is Cash Negative Debt? A Hedging Perspective on Corporate Financial Policies
By Heitor Almeida, Viral V. Acharya, ...