All you need is cash: corporate cash holdings and investment after the financial crisis
Christiane Kneer (),
Neeltje Van Horen () and
Jumana Saleheen ()
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Christiane Kneer: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Jumana Saleheen: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
No 843, Bank of England working papers from Bank of England
Firms with high pre-crisis cash holdings invested significantly more than their cash-poor rivals during the global financial crisis and especially so during the recovery phase. This resulted in a persistent and growing investment gap between cash-rich and cash-poor firms. Cash especially benefited young and small firms and firms in industries where rivals became more financially constrained. The amplification effect of cash was absent in the period preceding the crisis. The ability to continue to invest allowed cash-rich firms to gain market share and accumulate more profits over the long-run. Having a liquid balance sheet when the credit cycle turns thus gives firms a competitive edge that lasts far beyond the crisis years.
Keywords: Firm investment; cash holdings; credit constraints; financial crisis (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 G32 (search for similar items in EconPapers)
Pages: 49 pages
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0843
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