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Title:Uncertainty Determinants of Corporate Liquidity PDF Logo
Authors:Baum, Christopher F.
Caglayan, Mustafa
Stephan, Andreas
Talavera, Oleksandr
Issue Date:2006
Series/Report no.:DIW-Diskussionspapiere 633
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.
Subjects:liquidity
uncertainty
non-financial firms
dynamic panel data
JEL:D92
D8
C23
G32
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des DIW
DIW-Diskussionspapiere

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