This paper documents new and empirically important interactions between cash-balance and leverage dynamics. Cash ratios typically vary widely over extended horizons, with dynamics remarkably similar to (and complementary with) those of capital structure. Leverage and cash dynamics interact...

Most firms deleverage from their historical peak market-leverage (ML) ratios to near-zero ML, while also markedly increasing cash balances to high levels. Among 4,476 nonfinancial firms with five or more years of post-peak data, median ML is 0.543 at the peak and 0.026 at the later trough, with...