Firms with higher inflexibility to adjust their scale hold more cash than flexible firms due to precautionary considerations. This finding is confirmed in a regression discontinuity design that potentially mitigates endogeneity concerns. Consistent with the precautionary motive, inflexible firms...

We study the interplay between corporate liquidity and asset reallocation opportunities. Our model shows that financially distressed firms are acquired by liquid firms in their industries even when there are no operational synergies associated with the merger. We call these transactions...

We study the interplay between corporate liquidity and asset reallocation opportunities. Our model shows that financially distressed firms are acquired by liquid firms in their industries even when there are no operational synergies associated with the merger. We call these transactions...

We develop a unified framework to connect cash holding, debt maturity and mergers and acquisitions. We provide empirical support for four internally consistent predictions: i) equity and debt values of highly distressed firms are more sensitive to cash reserve than those of healthy firms; ii)...