Uncertainty determinants of corporate liquidity

Christopher F. Baum, Mustafa Caglayan, Andreas Stephan, Oleksandr Talavera

    Research output: Contribution to journalArticle

    33 Citations (Scopus)

    Abstract

    This paper investigates the link between the optimal level of non-financial firms' liquid assets and uncertainty. We develop a partial equilibrium model of precautionary demand for liquid assets showing that firms alter their liquidity ratio in response to changes in either macroeconomic or idiosyncratic uncertainty. We test this hypothesis using a panel of non-financial US firms drawn from the COMPUSTAT quarterly database covering the period 1993–2002. The results indicate that firms increase their liquidity ratios when macroeconomic uncertainty or idiosyncratic uncertainty increases.
    Original languageEnglish
    Pages (from-to)833-849
    JournalEconomic Modelling
    Volume25
    Issue number5
    DOIs
    Publication statusPublished - 1 Sep 2008

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