Uncertainty determinants of corporate liquidity

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

doi:10.1016/j.econmod.2007.11.006

Uncertainty determinants of corporate liquidity

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

Research output: Contribution to journal › Article › peer-review

72 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 language	English
Pages (from-to)	833-849
Journal	Economic Modelling
Volume	25
Issue number	5
DOIs	https://doi.org/10.1016/j.econmod.2007.11.006
Publication status	Published - 1 Sept 2008

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10.1016/j.econmod.2007.11.006

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title = "Uncertainty determinants of corporate liquidity",

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.",

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AU - Talavera, Oleksandr

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AB - 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.

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JO - Economic Modelling

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Uncertainty determinants of corporate liquidity

Abstract

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