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Why Do U.S. Firms Hold So Much More Cash than They Used To?
Author(s) -
BATES THOMAS W.,
KAHLE KATHLEEN M.,
STULZ RENÉ M.
Publication year - 2009
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2009.01492.x
Subject(s) - cash , cash and cash equivalents , monetary economics , cash conversion cycle , cash flow statement , debt , business , operating cash flow , cash on cash return , cash flow forecasting , sample (material) , cash flow , cash management , agency (philosophy) , economics , finance , philosophy , chemistry , chromatography , epistemology
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.