Why Has the Value of Cash Increased over Time?

Thomas Bates, Ching Hung Chang, Jianxin Daniel Chi

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

The value of corporate cash holdings has increased significantly in recent decades. On average, $1 of cash is valued at $0.61 in the 1980s, $1.04 in the 1990s, and $1.12 in the 2000s. This increase is predominantly driven by the investment opportunity set and cash-flow volatility, as well as secular trends in product market competition, credit market risk, and within-firm diversification. We document a secular decrease in the speed of adjustment (SOA) in cash holdings, particularly for financially constrained firms with cash deficits, suggesting that capital market frictions can account for the trend in the value of cash holdings.

Original languageEnglish (US)
Pages (from-to)749-787
Number of pages39
JournalJournal of Financial and Quantitative Analysis
Volume53
Issue number2
DOIs
StatePublished - Apr 1 2018

Fingerprint

Cash holdings
Cash
Investment opportunity set
Capital markets
Firm diversification
Cash flow volatility
Market frictions
Product market competition
Market risk
Secular trend
Credit markets
Speed of adjustment

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Why Has the Value of Cash Increased over Time? / Bates, Thomas; Chang, Ching Hung; Chi, Jianxin Daniel.

In: Journal of Financial and Quantitative Analysis, Vol. 53, No. 2, 01.04.2018, p. 749-787.

Research output: Contribution to journalArticle

Bates, Thomas ; Chang, Ching Hung ; Chi, Jianxin Daniel. / Why Has the Value of Cash Increased over Time?. In: Journal of Financial and Quantitative Analysis. 2018 ; Vol. 53, No. 2. pp. 749-787.
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