The effects of uncertainty and corporate governance on firms’ demand for liquidity

Christopher Baum, Atreya Chakraborty (), Liyan Han and Boyan Liu

Applied Economics, 2012, vol. 44, issue 4, 515-525

Abstract: We find that US corporations’ demand for liquidity is sensitive to two important factors: uncertainty facing the firm and the quality of corporate governance. Following prior research, we find that both factors have important influences on firms’ cash holdings. Our results also indicate that the interactions between uncertainty and governance measures are significant. From a policy perspective, these new findings indicate that both governance and the nature of uncertainty may play an important role in managing liquidity risks. Policy recommendations may not only be limited to changes in financial policy but may also include changes in corporate governance.

Date: 2012
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Working Paper: The Effects of Uncertainty and Corporate Governance on Firms' Demand for Liquidity (2009)
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DOI: 10.1080/00036846.2010.508733

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