Minimizing the Costs of Liquidity

F. K. Wright
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F. K. Wright: Fitzgerald Professor of Accounting, University of Melbourne. Thanks for helpful comments and suggestions are due to Richard Allan, Robert Nicol, Robert Officer, Peter Seddon, Samuel Soper, Evan Williams, and an anonymous referee.

Australian Journal of Management, 1978, vol. 3, issue 2, 203-224

Abstract: Costs of liquidity may be incurred by a firm through its inability to synchronize its cash receipts and payments. Liquidity costs include the opportunity cost of holding funds in the form of non-earning or low-yielding assets, some bank charges, and related transaction costs. Two models for minimizing these costs are presented in detail, a deterministic one, and a stochastic one based on the Miller-Orr model. Their limitations and possible application are discussed.

Keywords: CASH MANAGEMENT; LIQUIDITY COSTS; RANDOM-WALK MODELS; SHORT TERM ASSETS (search for similar items in EconPapers)
Date: 1978
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:3:y:1978:i:2:p:203-224

DOI: 10.1177/031289627800300207

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