There is anecdotal evidence that the primary reason why managers hold cash on their balance sheets is to cover operating losses (operating shortfalls). In this paper, we rationalize this as an optimal response in a world with contract heterogeneity. Specifically, we relax the standard assumption...

Corporate bond mutual funds tend to hold illiquid assets but provide liquid claims to their investors. How do they manage liquidity to meet investor redemptions? We show that, during tranquil market conditions, these funds tend to reduce liquid asset holdings such as cash and government bonds to...

In the late 1990s, the Japanese government initiated a number of reforms that resulted in lower transaction costs and made the Japanese equity market more attractive for foreign institutions. Following these changes, foreign institutional holdings more than doubled, providing an opportunity to...