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The Effects of Liquidity Shocks on Corporate Investments and Cash Holdings: Evidence from Actuarial Pension Gains/Losses
Author(s) -
Sasaki Takafumi
Publication year - 2015
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12106
Subject(s) - market liquidity , pension , cash , monetary economics , cash flow , business , investment (military) , sample (material) , economics , capital (architecture) , finance , chemistry , chromatography , politics , political science , law , archaeology , history
This paper investigates how anticipated liquidity shocks affect corporate investment and cash holdings by examining the impacts of actuarial pension gains/losses that do not reduce current internal resources but will reduce those available in the future. Using a sample from Japanese manufacturing firms in which pension deficits had a huge impact on the internal resources of sponsoring firms, I show that pension losses significantly decrease the capital expenditures of sponsoring firms. Pension losses also increase corporate cash holdings, suggesting precautionary demands for cash prepared for future pension contributions. Overall, the results indicate that managers consider anticipated liquidity shocks in determining current investment and cash‐saving policies.