We develop a simple model of investment in business groups subject to moral hazard. Our model suggests that productivity and pledgeable income are the drivers of resources in the internal capital markets of these groups. This prediction can be use to explain on the grounds of efficiency some...

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...

We explore the forces that drive cash savings in equity issuance using the average cash-savings rate instead of the marginal cash-savings rate that overstates individual issuers’ cash savings. Equity issuers with high investment opportunities save more cash in anticipation of greater cash...

The risk of securities class action litigation alters corporate savings and investment policy. Firms with greater exposure to securities litigation hold significantly more cash in anticipation of future settlements and other related costs. The result is due to firms accumulating cash in...

We investigate the effect of firm reliance on temporary workers on cash holdings. We exploit the quasi-natural experiment created by a temporary worker protection law in South Korea which requires firms to change a worker's status to full-time once the worker has been employed at the firm for...

We examine the determinants of corporate liquidity management through the lens of an estimated dynamic model of corporate investment and financing. When external finance is costly, firms can absorb shocks and cover liquidity needs by holding cash and by drawing down credit lines. In contrast to...

This paper contributes to studies on corporate liquidity management. It explores the determinants of cash holdings of firms in emerging countries using panel data models. The results indicate that highly liquid firms in emerging countries show one or more of the following characteristics. They...

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 identify firms according to two life cycle stages, namely growth and maturity, and test the pecking order theory of financing. We find a strong maturity effect, i.e. the pecking order theory describes the financing behavior of mature firms better than growth firms. Our findings show that firm...

We examine the central prediction of the pecking order theory of financing among firms in two distinct life cycle stages, namely growth and maturity. We find that within a life cycle stage, where levels of debt capacity and external financing needs are more homogeneous, and after sufficiently...