publication . Research . Other literature type . 2013

Stock Liquidity and Corporate Cash Holdings: Feedback and the Cash as Ammunition Hypothesis

Nyborg, Kjell G; Wang, Zexi;
Open Access English
  • Published: 01 Jun 2013
  • Country: Switzerland
Abstract
The paper contributes to the literature on corporate cash holdings by showing that there is a financial markets channel that affects corporations’ cash holdings. Leaning on the literature on stock price feedback to firm fundamentals, we advance the hypothesis that firms with more liquid stocks hold more cash, ceteris paribus, as ammunition to defend against negative cascades or stimulate positive ones. This contrasts with an alternative view that firms with more liquid stocks are less financially constrained and therefore hold relatively less cash. The evidence favors the cascade/cash as ammunition hypothesis, also with respect to its predictions regarding growt...
Subjects
free text keywords: Department of Banking and Finance, 330 Economics
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