The Effects of Uncertainty and Corporate Governance on Firms' Demand for Liquidity

Christopher Baum, Atreya Chakraborty (), Liyan Han and Boyan Liu
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Liyan Han: Beihang University
Boyan Liu: Beihang University

No 726, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We find that U.S. corporations' demand for liquidity is sensitive to two important factors: uncertainty facing the firm and the quality of corporate governance. Following prior research, we find that both factors have important influences on firms' cash holdings. Our results also indicate that the interactions between uncertainty and governance measures are significant. From a policy perspective, these new findings indicate both governance and the nature of uncertainty may play an important role in managing liquidity risks. Policy recommendations may not only be limited to changes in financial policy but may also include changes in corporate governance.

Keywords: liquidity; demand for cash; uncertainty; governance; Gindex (search for similar items in EconPapers)
JEL-codes: E32 G32 G34 (search for similar items in EconPapers)
Date: 2009-11-11
New Economics Papers: this item is included in nep-bec and nep-cfn
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Published, Applied Economics, 44:4, 515-525, 2012

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Journal Article: The effects of uncertainty and corporate governance on firms’ demand for liquidity (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:726

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