Why do U.S. firms hold so much more cash than they used to?

Thomas Bates, Kathleen M. Kahle, René M. Stulz

Research output: Contribution to journalArticle

626 Citations (Scopus)

Abstract

The average cash-to-assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.

Original languageEnglish (US)
Pages (from-to)1985-2021
Number of pages37
JournalJournal of Finance
Volume64
Issue number5
DOIs
StatePublished - Oct 2009

Fingerprint

Cash
Cash holdings
Economics
Cash flow
Precautionary motive
Agency conflict
Assets
Obligation
Debt

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

Why do U.S. firms hold so much more cash than they used to? / Bates, Thomas; Kahle, Kathleen M.; Stulz, René M.

In: Journal of Finance, Vol. 64, No. 5, 10.2009, p. 1985-2021.

Research output: Contribution to journalArticle

Bates, Thomas ; Kahle, Kathleen M. ; Stulz, René M. / Why do U.S. firms hold so much more cash than they used to?. In: Journal of Finance. 2009 ; Vol. 64, No. 5. pp. 1985-2021.
@article{639740b873c34a9bb7b1d2ee9a6698ee,
title = "Why do U.S. firms hold so much more cash than they used to?",
abstract = "The average cash-to-assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.",
author = "Thomas Bates and Kahle, {Kathleen M.} and Stulz, {Ren{\'e} M.}",
year = "2009",
month = "10",
doi = "10.1111/j.1540-6261.2009.01492.x",
language = "English (US)",
volume = "64",
pages = "1985--2021",
journal = "Journal of Finance",
issn = "0022-1082",
publisher = "Wiley-Blackwell",
number = "5",

}

TY - JOUR

T1 - Why do U.S. firms hold so much more cash than they used to?

AU - Bates, Thomas

AU - Kahle, Kathleen M.

AU - Stulz, René M.

PY - 2009/10

Y1 - 2009/10

N2 - The average cash-to-assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.

AB - The average cash-to-assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.

UR - http://www.scopus.com/inward/record.url?scp=70349487039&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=70349487039&partnerID=8YFLogxK

U2 - 10.1111/j.1540-6261.2009.01492.x

DO - 10.1111/j.1540-6261.2009.01492.x

M3 - Article

VL - 64

SP - 1985

EP - 2021

JO - Journal of Finance

JF - Journal of Finance

SN - 0022-1082

IS - 5

ER -