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Inflation and the evolution of firm-level liquid assets

Chadwick C. Curtis, Julio Garín and M. Saif Mehkari

Journal of Banking & Finance, 2017, vol. 81, issue C, 24-35

Abstract: This paper shows that inflation has been an important determinant of firm-level liquid asset holdings. Liquid assets as a share of total assets – the cash ratio – for U.S. corporations steadily declined from the 1960s to the early 1980s, and has since steadily increased. Our empirical analysis finds that inflation is a key factor accounting for these changes. We show that these liquid asset holdings are imperfectly hedged against inflation. Hence, changes in inflation alter the real value of a firm’s liquid asset portfolio causing them to readjust these balances.

Keywords: Cash holding; Inflation; Liquidity; Liquid assets; Cash ratio (search for similar items in EconPapers)
JEL-codes: G3 G32 E31 (search for similar items in EconPapers)
Date: 2017
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Persistent link: http://EconPapers.repec.org/RePEc:eee:jbfina:v:81:y:2017:i:c:p:24-35

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