We use a dynamic model of cash management in which firms face competitive pressure to show that competition increases corporate cash holdings as well as the frequency and size of equity issues. In our model, these effects are driven by small, financially constrained firms, in contrast with the...

This paper examines how firms adjust cash holdings following horizontal mergers in the industry. Using a sample of 16,597 horizontal mergers between US firms from 1984 to 2016, we find that in the three-year period following horizontal mergers, the marginal value of cash decreases for the rivals...

Consistent with precautionary savings models, we provide evidence that firms hoard cash in response to an exogenous credit shortage. For identification, we compare public U.S. firms in the same industry, location, and size quintile, but whose access to bank credit was differentially affected...

We examine the effect of relationship lending on a firm's cash-holding levels. Relationship lending allows lenders to generate private information about borrowers which mitigates their financial constraints. We find that cash-holding levels for firms with a relationship lender are significantly...

This work studies the effects of competition on corporate cash holdings. I develop an industry equilibrium model in which credit constrained firms use liquidity reserves as a buffer against future cash shortfalls. Competition triggers two contrasting effects. First, it increases the option value...

Ensuring that a firm has sufficient liquidity to finance valuable projects that occur in the future is at the heart of the practice of financial management. Yet, while discussion of these issues goes back at least to Keynes (1936), a substantial literature on the ways in which firms manage...

We examine firms' simultaneous choice of investment, debt financing and liquidity in a large sample of US corporates between 1980 and 2014. We partition the sample according to the firms' financial constraints and their needs to hedge against future shortfalls in operating income. In contrast to...

We explore theoretically and empirically the relationship between firm productivity and liquidity management in the presence of financial frictions. We build a dynamic investment model and show that, counter to basic economic intuition, more productive firms could demand less capital assets and...

This paper explores the connection between rising intangible capital and the secular upward trend in US corporate cash holdings. We calibrate a dynamic model with two productive assets, tangible and intangible capital, to highlight the following points: 1) since only tangible capital can be...