Why Do U.S. Firms Hold So Much More Cash Than They Used To? / Thomas W. Bates, Kathleen M. Kahle, Rene M. Stulz.

Format:

Book

Author/Creator:

Bates, Thomas W.

Contributor:

National Bureau of Economic Research.

Kahle, Kathleen M.

Stulz, Rene M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12534.

NBER working paper series no. w12534

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

The average cash to assets ratio for U.S. industrial firms increases by 129% from 1980 to 2004. Because of this increase in the average cash ratio, American firms at the end of the sample period can pay back their debt obligations with their cash holdings, so that the average firm has no leverage when leverage is measured by net debt. This change in cash ratios and net debt is the result of a secular trend rather than the outcome of the recent buildup in cash holdings of some large firms. It is concentrated among firms that do not pay dividends. The average cash ratio increases over the sample period because the cash flow of American firms has become riskier, these firms hold fewer inventories and accounts receivable, and the typical firm spends more on R&D. The precautionary motive for cash holdings appears to explain the increase in the average cash ratio.

Notes:

Print version record

September 2006.