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The Impact of Macroeconomic Uncertainty on Cash Holdings for Non-Financial Firms

Christopher Baum (), Mustafa Caglayan (), Neslihan Ozkan and Oleksandr Talavera

No 410, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper investigates the effects of macroeconomic volatility on non-financial firms' cash holding behavior. Using an augmented cash buffer-stock model, we demonstrate that an increase in macroeconomic volatility will cause the cross-sectional distribution of firms' cash-to-asset ratios to narrow. We test this prediction on a panel of non-financial firms drawn from the annual COMPUSTAT database covering the period 1957-2000, and find that as macroeconomic uncertainty increases, firms behave more homogeneously. Our results are shown to be robust to the inclusion of the levels of several macroeconomic factors.

Keywords: Cash holdings; Macroeconomic uncertainty; Time series; ARCH; Non¿financial firms (search for similar items in EconPapers)
Pages: 35 p.
Date: 2004
New Economics Papers: this item is included in nep-dev, nep-mac and nep-mon
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Related works:
Working Paper: The Impact of Macroeconomic Uncertainty on Cash Holdings for Non–Financial Firms (2004) Downloads
Working Paper: The Impact of Macroeconomic Uncertainty on Cash Holdings for Non-Financial Firms (2004) Downloads
Working Paper: The Impact of Macroeconomic Uncertainty on Cash Holdings for Non-Financial Firms (2003) Downloads
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