Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/18526 
Year of Publication: 
2006
Series/Report no.: 
DIW Discussion Papers No. 633
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
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

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