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We model a firm's demand for liquidity to develop a new test of the effect of financial constraints on corporate policies. The effect of financial constraints is captured by the firm's propensity to save cash out of cash f lows (the cash flow sensitivity of cash).We hypothesize that constrained firms should have a positive cash f low sensitivity of cash, while unconstrained firms' cash savings should not be systematically related to cash f lows. We empirically estimate the cash f low sensitivity of cash using a large sample of manufacturing firms over the 1971 to 2000 period and find robust support for our theory.

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This paper is a survey of the literature on boards of directors, with an emphasis on research done subsequent to the Hermalin and Weisbach ( These questions are fundamentally intertwined, which complicates the study of boards due to the joint endogeneity of makeup and actions. A focus of this survey is on how the literature, theoretical as well as empirically, deals-or on occasions fails to deal-with this complication. We suggest that many studies of boards can best be interpreted as joint statements about both the director-selection process and the effect of board composition on board actions and firm performance. * The authors wish to thank Ji-Woong Chung, Rüdiger Fahlenbach, and Eliezer Fich for helpful comments on earlier drafts.

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Unlike Dutch auction repurchases and tender offers, open-market repurchase programs do not precommit firms to acquire a specified number of shares. In a sample of 450 programs from 1981 to 1990, firms on average acquire 74 to 82 percent of the shares announced as repurchase targets within three years of the repurchase announcement. We find that share repurchases are negatively related to prior stock price performance, suggesting that firms increase their purchasing depending on its degree of perceived undervaluation. In addition, repurchases are positively related to levels of cash flow, which is consistent with liquidity arguments.