The Effects of Industry-Level Uncertainty on Cash Holdings: The Case of Germany

Christopher Baum, Dorothea Schäfer and Oleksandr Talavera (oleksandr.talavera@gmail.com)

No 637, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper investigates the link between the optimal level of non-financial firms' liquid assets and industry-level uncertainty. We develop a structural model of a firm's value maximization problem that predicts that as industry-level uncertainty increases the firm will increase its optimal level of liquidity. We test this hypothesis using a panel of German firms drawn from the Bundesbank's balance sheet database and show that greater uncertainty at the industry level causes firms to increase their cash holdings. The strength of these effects differ among subsamples of the firms with different characteristics.

Keywords: Uncertainty; cash holdings; liquidity; non-financial firms (search for similar items in EconPapers)
JEL-codes: G31 G32 L14 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2006-02-13, Revised 2006-08-05
New Economics Papers: this item is included in nep-bec and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp637.pdf main text (application/pdf)

Related works:
Working Paper: The Effects of Industry-Level Uncertainty on Cash Holdings: The Case of Germany (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:637

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum (baum@bc.edu).