Why do diversified firms hold significantly less cash than focused firms? We study this using a dynamic model of corporate investment, saving, and diversification decisions. We find that investment dynamics are more important in explaining the cash differences than financing frictions. More...

In this study, we examine the performance of portfolios based on excess cash holdings using a sample of UK listed firms. We argue that firms with excess cash holdings outperform firms that hold less cash. Strategically, excess cash holdings provide advantages in the product market and have been...

We study liquidity transformation in mutual funds using a novel data set on their cash holdings. To provide investors with claims that are more liquid than the underlying assets, funds engage in substantial liquidity management. Specifically, they hold substantial amounts of cash, which they use...

Recent empirical evidence suggests that US industrial firms invest heavily in noncash, risky financial assets. Using hand-collected data on financial portfolios of German firms, we show that risky asset holdings are not an anomaly unique to the US. We find that industrial firms in Germany invest...

We study liquidity transformation in mutual funds using a novel data set on their cash holdings To provide investors with claims that are more liquid than the underlying assets, funds engage in substantial liquidity management. Specifically, they hold substantial amounts of cash, which they use...