Corporate Financial Policy and the Value of Cash under Uncertainty

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

No 918, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: In this paper we provide evidence on how firm-specific and macroeconomic uncertainty affects shareholders' valuation of a firm's cash holdings. This extends previous work on this issue by highlighting the importance of the source of uncertainty. Our findings indicate that increases in firm-specific risk generally increase the value of cash while increases in macroeconomic risk generally decrease the value of cash. These findings are robust to alternative definitions of the unexpected change in cash. We extend our analysis to financially constrained and unconstrained firms.

Keywords: cash holdings; marginal value of cash; macro uncertainty; idiosyncratic uncertainty; financial constraints (search for similar items in EconPapers)
JEL-codes: D81 G32 G34 (search for similar items in EconPapers)
Date: 2016-07-20
New Economics Papers: this item is included in nep-bec and nep-cfn
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Citations: View citations in EconPapers (3)

Forthcoming, International Journal of Managerial Finance

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Journal Article: Corporate financial policy and the value of cash under uncertainty (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:918

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