This paper reexamines the empirical evidence on the cash flow sensitivity of cash presented by Almeida, Campello, and Weisbach (2004). The original paper introduces a model in which financially constrained firms choose to save cash out of incremental cash flows but financially unconstrained do...

This paper proposes a theory of corporate liquidity demand and provides new evidence on corporate cash policies. Firms have access to valuable investment opportunities, but potentially cannot fund them with the use of external finance. Firms that are financially unconstrained can undertake all...

We model the interplay between cash and debt policies in the presence of financial constraints. While saving cash allows financially constrained firms to hedge against future income shortfalls, reducing debt - quot;saving borrowing capacityquot; - is a more effective way of securing future...