The Marginal Value of Cash: Corporate Savings, Investment, and Financing

Patrick Bolton, Hui Chen () and Neng Wang
Additional contact information
Patrick Bolton: National Bureau of Economic Research, Cambridge, Massachusetts, USA
Hui Chen: National Bureau of Economic Research, Cambridge, Massachusetts, USA
Neng Wang: Asian Bureau of Finance and Economic Research, Singapore

Annual Review of Financial Economics, 2024, vol. 16, issue 1, 295-324

Abstract: The fact that internal liquidity is a key source of corporate funding puts the marginal value of cash at the center of a variety of firm decisions, including investment, payout, financing, savings, and risk management policies. The marginal value of cash is inherently a dynamic concept, because a firm facing financing frictions has to be forward-looking, managing its asset and liability structures in a unified framework and carefully trading off the use of liquidity across time and states. We present a dynamic framework for corporate liquidity management and survey the related literature, with a focus on the determinants of the marginal value of cash and its ubiquitous role in firm decisions.

Keywords: liquidity; marginal value of cash; investment; q theory; financing (search for similar items in EconPapers)
JEL-codes: E22 E44 G3 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1146/annurev-financial-111021-103759

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