Corporate Cash Holdings and Credit Line Usage

Boileau, Martin; Moyen, Nathalie

doi:10.1111/iere.12205

Cited by 48 publications

(29 citation statements)

References 77 publications

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“…Several studies find a positive relation between cash holdings and proxies for investment opportunities and/or external finance costs. 12 On the cost side, Kim et al (1998), Boileau and Moyen (2016) and Azar, Kagy, and Schmalz (2016) provide evidence that cash holdings are negatively related to measures of the liquidity premium and the cost of carry. Several studies provide evidence consistent with the agency costs of cash holdings.…”

Section: Review Of Literature Related To Our Cross-sectional Analysismentioning

confidence: 99%

“…We confirm this after correcting for the back-fill bias in Compustat and also show that this was a reversal of an equally large increase in cash holdings from 1920 through WWII. Azar et al (2016), Curtis et al (2017), and Boileau and Moyen (2016) show evidence that the time-series of corporate cash is related to the cost of carry. Using a longer time series, we show that while cost of carry is statistically related to aggregate cash in levels, the relation is insignificant in first differences and cost of carry has little explanatory power for aggregate cash over the whole century.…”

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confidence: 99%

“…Several explanations have been proposed to explain this apparent shift in corporate policies. For example, Bates et al (2009) suggest the riskiness of corporate cash flows has increased over time; Falato et al (2013) suggest the nature of firms' assets has changed; Boileau and Moyen (2016) and Azar et al (2016) argue that the opportunity cost of holding cash has declined; Nikolov and Whited (2014) suggest that agency conflicts stemming from low managerial stock ownership are responsible, and Booth and Zhou (2013) and Begenau and Palazzo (2017) argue for a change in the nature of firms going public. While these studies provide helpful insights, to fully understand what is different about modern cash policies and what drives time-series changes in corporate cash, one needs to put the recent trends in historical perspective.…”

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confidence: 99%

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The Evolution of Corporate Cash

Graham

Leary

2018

The Review of Financial Studies

123

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In a study published recently in the Review of Financial Studies, the authors examine and then attempt to explain the considerable variation in the cash‐to‐assets ratios of U.S. public companies over a nearly 100‐year period. For example, between 1920 and 1945, the average cash holdings of both small and large U.S. companies tripled. By 1970, however, the cash levels of both had fallen back to their starting point in the early 1920s. Then, at the start of the 1980s, the cash policies of small and large companies began to part ways. Thanks to the very large cash holdings of the wave of companies that went public during the next two decades, the average corporate cash ratio increased sharply from 1980 to 2000—a period when the cash holdings of large, established U.S. companies remained largely unchanged. But since 2000, it has been the large U.S. companies—many of them multinationals with profits “trapped” overseas—that have experienced the largest increase in cash holdings. The authors find especially compelling evidence that the significant increase in average cash holdings from 1980 to 2000 was driven primarily by a “Nasdaq effect” in which a large number of firms went public on the Nasdaq while holding amounts of cash that increased steadily throughout this 20‐year period. This Nasdaq effect was most pronounced among unprofitable, largely debt‐free, high‐growth, and high‐volatility firms, most of which operated in the healthcare or high‐tech industries. And this trend may well continue in the future, given recent reports of a growing fraction of IPOs by companies that have yet to show profits. But along with and apart from this “Nasdaq” effect, the authors also find that for NYSE companies, the sensitivities of company‐specific cash holdings to commonly studied variables have been remarkably stable during the past 90 years. The kinds of companies that have operated with high cash‐to‐assets ratios in recent years—riskier companies with growth opportunities and little if any profits or use of debt—have had large cash holdings in nearly every decade during the last century. And as in the past, relatively low‐growth and low‐risk public companies producing steady income have continued to operate with lower levels of cash. But even with this relative stability of firm‐specific cash sensitivities, the authors do not find changes in corporate characteristics helpful in explaining the changes in aggregate cash holdings over time, particularly the large increases during the 1930s and early '1940s, and the period since 2000. The largest roles in such increases appear to have been played by macroeconomic factors, such as the level of general economic growth and its effect on corporate profitability and investment. Nevertheless, in recent times, even after taking these macro and micro factors into account, the authors' study provides clear evidence that the repatriation tax incentives (that were recently eliminated by the 2018 tax legislation) have played the largest role in the increase in aggregate corporate cash holdings...

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Section: Review Of Literature Related To Our Cross-sectional Analysismentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

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The Evolution of Corporate Cash

Graham

Leary

2018

The Review of Financial Studies

123

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“…The higher uncertainty strengthens the precautionary motive, whereby firms have an incentive reduce dividend issuance and decrease borrowing so as to avoid future financial constraints. While this is a common explanation for the increase in cash holdings (Bates, Kahle, and Stulz, 2009;Boileau and Moyen, 2016;Armenter and Hnatkovska, 2017;Zhao, 2017), it also generates the counterfactual prediction that the rate of zero net equity issuance should increase. Again, we highlight how our model is able to reconcile these trends.…”

Section: Accounting For the Empirical Trendsmentioning

confidence: 99%

“…In the literature, a frequent explanation for the rise in cash holdings is that there has been an increase in cash flow risk. This is an argument made by Bates, Kahle, and Stulz (2009), Boileau and Moyen (2016), Armenter and Hnatkovska (2017), and Zhao (2017). Armenter and Hnatkovska (2017) also argue that equity has become cheaper relative to debt.…”

Section: Introductionmentioning

confidence: 96%

Taxes and financial frictions: Implications for corporate capital structure

Macnamara

2019

Journal of Economic Dynamics and Control

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According to data from Compustat, we observe three general trends between 1980 and 2012. First, firms have been reducing their reliance on debt, as leverage ratios have fallen and an increasing fraction of firms are now actually net lenders. Second, the frequency at which firms neither issue external equity nor distribute dividends to shareholders has fallen. Third, marginal corporate income tax rates have fallen significantly as well. Using Compustat balance sheet data, we structurally estimate a model in which heterogeneous firms finance investment with equity and debt. Our model incorporates costly external finance as well as a detailed tax structure, including personal, dividend and corporate income taxes. We conclude that there has been a significant reduction in the cost of external equity, while overall leverage ratios have fallen mainly because of a lower tax advantage of debt.

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What Do We Know About Corporate Cash Holdings? A Systematic Analysis

Cruz¹,

Kimura²,

Sobreiro³

2019

J Corp Accounting Finance

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Cash holdings play an important role at the heart of firms' policies. Researchers have devoted considerable attention to the dramatic increase in cash reserves despite alternative instruments such as debt, derivatives, and credit lines. The finance literature discusses the antecedents and determinants of cash holdings as well as the different reasons for firms to hold cash. In this paper, we present a systematic literature review of cash holdings in the finance field. The major studies in this area are classified and coded, and a research agenda and recommendations that may advance the field are discussed. © 2019 Wiley Periodicals, Inc.

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Corporate Cash Holdings and Credit Line Usage

Cited by 48 publications

References 77 publications

The Evolution of Corporate Cash

The Evolution of Corporate Cash

Taxes and financial frictions: Implications for corporate capital structure

What Do We Know About Corporate Cash Holdings? A Systematic Analysis

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