• cash holdings;
  • financial constraints;
  • credit ratings;
  • marginal cash value
  • G31;
  • G32


We examine the influence of credit rating changes on corporate excess cash holdings. We find that downgraded firms increase excess cash holdings by approximately 3% of total noncash assets, compared to a matched sample of firms without a rating change. We largely observe no significant cash policy change following upgrades. While our findings support existing studies on the value of precautionary cash hoarding in the face of increased financial constraint, we find hoarding is value-decreasing for shareholders. The marginal value of excess cash declines by at least 40% for downgraded firms and much more so when firms have histories of excess cash hoarding.