Francis Joonsung Won
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Do firms park capital? Evidence from the U.S. manufacturing sector
Investment Management and Financial Innovations Volume 15, 2018 Issue #2 pp. 194-202
Views: 1028 Downloads: 118 TO CITE АНОТАЦІЯThis study uses the “cost of carry” (CoC) measure to identify the motive for corporate cash holdings. Based on the historical, moving-average holdings of currency and liquid assets, the measure represents the net opportunity cost of corporate demand for money. This study finds that large manufacturing firms in the U.S. park their capital in short-term assets appealing to the agency motive for cash holdings. Because dividend-paying firms can choose to distribute their capital to equity shareholders when their investment opportunities are unfavorable, these firms might show a non-positive association between capital expenditure and the CoC measure, championing the transactions motive. Still, dividend-paying large firms exhibit an overall positive correlation, suggesting that they park their capital on the agency motive. A detailed literature review and discussions are followed.
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