Corporate Cash Hoarding: The Role of Just-in-Time Adoption

Xiaodan Gao

Management Science, 2018, vol. 64, issue 10, 4858-4876

Abstract: I explore the role of the just-in-time (JIT) inventory system in the increase in cash holdings by U.S. manufacturing firms. I develop a model to illustrate the mechanism through which JIT affects cash and quantify its impact. In the model, both cash and inventory can serve as working capital. As firms switch from the traditional system to JIT, they shift resources from inventory to cash to facilitate transactions with suppliers. On average, this switchover accounts for a 4.1-percentage-point increase in the cash-to-assets ratio, which is approximately 28% of the change observed in the data.

Keywords: cash holdings; inventory; just-in-time; costly external financing; trade credit (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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