Why Do U.S. Firms Hold So Much More Cash than They Used To?
Article first published online: 28 SEP 2009
© 2009 the American Finance Association
The Journal of Finance
Volume 64, Issue 5, pages 1985–2021, October 2009
How to Cite
BATES, T. W., KAHLE, K. M. and STULZ, R. M. (2009), Why Do U.S. Firms Hold So Much More Cash than They Used To?. The Journal of Finance, 64: 1985–2021. doi: 10.1111/j.1540-6261.2009.01492.x
- Issue published online: 28 SEP 2009
- Article first published online: 28 SEP 2009
The average cash-to-assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms’ cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.