Abstract
Prior literature has shown that U.S. firms hold large amounts of cash for precautionary reasons: faced by heightened uncertainty regarding future cash needs, firms choose to hold more cash. We decompose firm-level uncertainty into systematic and idiosyncratic components, and find that the systematic component, rather than the idiosyncratic component, explains firms’ cash holding decisions. We further decompose systematic uncertainty and find that uncertainty regarding macroeconomic policy, interest rates, and the market risk premium are important determinants of cash holdings. The results stem from the effect of macroeconomic level uncertainty on both the need for and the cost of external financing.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
