Product Market Competition and Corporate Cash Holdings: A Cross-Country Evidence

2019 ◽  
Author(s):  
Sanjiv Sabherwal ◽  
Trang Thai
Keyword(s):  
Market Competition ◽  
Cash Holdings ◽  
Product Market ◽  
Product Market Competition ◽  
Cross Country ◽  
Corporate Cash Holdings

scholarly journals Why Has the Value of Cash Increased Over Time?

2018 ◽  
Vol 53 (2) ◽  
pp. 749-787 ◽  
Author(s):  
Thomas W. Bates ◽  
Ching-Hung Chang ◽  
Jianxin Daniel Chi
Keyword(s):  
Capital Market ◽  
Market Competition ◽  
Cash Holdings ◽  
Product Market Competition ◽  
Speed Of Adjustment ◽  
Firm Diversification ◽  
Investment Opportunity Set ◽  
Value Of Cash ◽  
Cash Flow Volatility ◽  
Corporate Cash Holdings

The value of corporate cash holdings has increased significantly in recent decades. On average, $1 of cash is valued at $0.61 in the 1980s, $1.04 in the 1990s, and $1.12 in the 2000s. This increase is predominantly driven by the investment opportunity set and cash-flow volatility, as well as secular trends in product market competition, credit market risk, and within-firm diversification. We document a secular decrease in the speed of adjustment (SOA) in cash holdings, particularly for financially constrained firms with cash deficits, suggesting that capital market frictions can account for the trend in the value of cash holdings.

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