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
Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - The Effect of Stock Liquidity on Cash Holdings: The Repurchase Motive
AU - Nyborg, Kjell
AU - Wang, Jesse
N1 - 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
PY - 2021/11/30
Y1 - 2021/11/30
N2 - 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.
AB - 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.
KW - Corporate cash holdings, Stock liquidity, Repurchases, Credit lines
KW - Stock liquidity
KW - Repurchases
KW - Credit lines
U2 - 10.1016/j.jfineco.2021.05.027
DO - 10.1016/j.jfineco.2021.05.027
M3 - Journal article
VL - 142
SP - 905
EP - 927
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 2
ER -