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Dutch corporate liquidity mangement: New evidence on aggregation

Allard Bruinshoofd () and Clemens Kool ()

Journal of Applied Economics, 2004, vol. 7, 195-230

Abstract: In this paper we investigate Dutch corporate liquidity management in general, and target adjustment behaviour in particular. To this purpose, we use a simple error correction model of corporate liquidity holdings applied to firm-level data for the period 1977-1997. We confirm the existence of long-run liquidity targets at the firm level. We also find that changes in liquidity holdings are driven by short-run shocks as well as the urge to converge towards targeted liquidity levels. The rate of target convergence is higher when we include more firm-specific information in the target. This result supports the idea that increased precision in defining liquidity targets associates with a faster observed rate of target convergence. It also suggests that the slow speeds of adjustment obtained in many macro studies on money demand are artefacts of aggregation bias.

Keywords: corporate liquidity demand; precautionary liquidity (search for similar items in EconPapers)
JEL-codes: C33 C43 E41 G3 (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:7:y:2004:n:2:p:195-230

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