TY - JOUR
T1 - Why Has the Value of Cash Increased over Time?
AU - Bates, Thomas
AU - Chang, Ching Hung
AU - Chi, Jianxin Daniel
N1 - Funding Information:
*Bates, thomas.bates@asu.edu, Arizona State University Carey School of Business; Chang, chinghungc@ntu.edu.tw, National Taiwan University College of Management; and Chi (corresponding author), daniel.chi@unlv.edu, University of Nevada, Las Vegas Lee Business School. We thank Jarrad Harford (the editor) and an anonymous referee, whose suggestions have significantly improved the paper. For helpful comments and suggestions, we also thank Aziz Alimov, Sreedhar Bharath, Claudia Custódio, Mark Huson, Shane Johnson, Tae-Nyun Kim, Michael Lemmon, Robert Parrino, Xunhua Su, Mike Sullivan, Neng Wang, and seminar participants at the 2012 China International Conference in Finance, the 2012 International Conference on Financial Risk and Corporate Finance Management, and the 2012 Financial Management Association Meeting. Chang gratefully acknowledges financial support from Minister of Science and Technology of Taiwan. Chi gratefully acknowledges financial support from the Key Program of National Natural Science Foundation of China (71731003).
Publisher Copyright:
© 2018 Michael G. Foster School of Business, University of Washington.
PY - 2018/4/1
Y1 - 2018/4/1
N2 - 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.
AB - 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.
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U2 - 10.1017/S002210901700117X
DO - 10.1017/S002210901700117X
M3 - Article
AN - SCOPUS:85044177481
SN - 0022-1090
VL - 53
SP - 749
EP - 787
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 2
ER -