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Title:The Effects of Industry-Level Uncertainty on Cash Holdings: The Case of Germany PDF Logo
Authors:Baum, Christopher F.
Schäfer, Dorothea
Talavera, Oleksandr
Issue Date:2006
Series/Report no.:DIW-Diskussionspapiere 638
Abstract:This paper investigates the link between the optimal level of non-financial firms' liquid assets and industry-level uncertainty. We develop a structural model of a firm's value maximization problem that predicts that as industry-level uncertainty increases the firm will increase its optimal level of liquidity. We test this hypothesis using a panel of German firms drawn from the Bundesbank's balance sheet database and show that greater uncertainty at the industry level causes firms to increase their cash holdings. The strength of these effects differ among subsamples of the firms with different characteristics.
Subjects:Uncertainty
cash holdings
liquidity
non-financial firms
JEL:L14
G31
G32
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des DIW
DIW-Diskussionspapiere

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