Abstract
AbstractUsing announcement memos released by the National Bureau of Economic Research (NBER), we show that corporations increase liquidity during the quarter the NBER announces a peak in the business cycle. This reaction is primarily restricted to memos about peaks in the business cycle, whether it is a preliminary announcement or an official confirmation. Federal Open Market Committee and other monetary policy news, real‐time data releases, and tightening credit conditions do not drive the increase. This finding adds to the precautionary cash holdings literature by suggesting that corporations adjust liquidity not necessarily before recessions, but upon confirmation of a recession.
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