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  • NyborgWang2020_JFE_Forthcoming_CashLiquidity

    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of Financial Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial, 142, 2, 2021 DOI: 10.1016/j.jfineco.2021.05.027

    Accepted author manuscript, 404 KB, PDF document

    Available under license: CC BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License

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The Effect of Stock Liquidity on Cash Holdings: The Repurchase Motive

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Published
<mark>Journal publication date</mark>30/11/2021
<mark>Journal</mark>Journal of Financial Economics
Issue number2
Volume142
Number of pages23
Pages (from-to)905-927
Publication StatusPublished
Early online date10/10/21
<mark>Original language</mark>English

Abstract

Enhanced stock liquidity increases a firm’s propensity to hold cash. This is surprising given the view that improved stock liquidity reduces financial constraints. We propose that firms have a repurchase motive for holding cash. Higher stock liquidity strengthens this incentive. Consistent with this, firms with more liquid stock increase cash holdings relatively more when restrictions to repurchases are eased. The effect of stock liquidity on cash holdings is not influenced by access to credit markets. Our findings suggest that the repurchase motive dominates the real investments motive with respect to the effect of stock liquidity on cash holdings.

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of Financial Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial, 142, 2, 2021 DOI: 10.1016/j.jfineco.2021.05.027