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CORPORATE LIQUIDITY AND NBER RECESSION ANNOUNCEMENTS
Author(s) -
Stone AnnaLeigh,
Gup Benton E.
Publication year - 2019
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12191
Subject(s) - recession , market liquidity , business cycle , quarter (canadian coin) , monetary economics , monetary policy , business , economics , financial system , macroeconomics , archaeology , history
Using announcement memos released by the National Bureau of Economic Research (NBER), we show that corporations increase liquidity during the quarter the NBER announces a peak in the business cycle. This reaction is primarily restricted to memos about peaks in the business cycle, whether it is a preliminary announcement or an official confirmation. Federal Open Market Committee and other monetary policy news, real‐time data releases, and tightening credit conditions do not drive the increase. This finding adds to the precautionary cash holdings literature by suggesting that corporations adjust liquidity not necessarily before recessions, but upon confirmation of a recession.