Cash savings and capital markets

R. David McLean and Mengxin Zhao

Journal of Empirical Finance, 2018, vol. 47, issue C, 49-64

Abstract: A growing literature argues that firms plan their cash policies while considering dynamics in the supply of capital. Evidence from the U.S. shows firms making large equity issues when stock prices are high for the purpose of building precautionary cash savings. We confirm this U.S. evidence, and find these effects internationally in countries like the U.S. where external finance is more accessible. In these countries, the relation between precautionary motives and cash savings disappears if the proceeds from net equity issues are removed from cash. In contrast, high precautionary motive firms do not build cash with equity issues in countries where external finance is costlier, suggesting the benefits of holding cash are outweighed by issuance costs. Our findings show that access to equity finance has a first order impact on cash policy.

Keywords: Cash; Capital markets; Precautionary motives; Seasoned equity offerings; Market timing (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539818300112
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:47:y:2018:i:c:p:49-64

DOI: 10.1016/j.jempfin.2018.02.001

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().