 Stockpiling cash when it takes time to build: Exploring price differentials in a commodity boomErwin Hansen and Rodrigo Wagner Journal of Banking & Finance, 2017, vol. 77, issue C, 197-212 Abstract: Some projects take time to build or are slow to yield cash flows. This may impact the dynamics of investment and liquidity management, although few studies test their financial implications. We exploit the peculiar advantages of copper mines as a laboratory to identify cash-flow sensitivities. In this context, investment decisions depend on the expectations of the long run price of the commodity, while the spread between the spot price and this long run expectations shifts current cash-flows. For this study we compiled a sample of copper firms between 2002 and 2012. We do not find significant effects of cash flow on current capital expenditures, but we do observe a systematic cash flow sensitivity of cash holdings, meaning that some of these transitory earnings are retained as liquidity. This cash stockpiling is stronger among financially constrained firms. In a context of time-to-build, our findings support financial theories emphasizing the salience of cash as buffer stock for liquidity in preparation for future investment opportunities. Keywords: Cash flow sensitivity of cash; Investment; Liquidity; Time-to-build (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:77:y:2017:i:c:p:197-212 DOI: 10.1016/j.jbankfin.2017.01.015 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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