When Does Cash Matter? Evidence for Private Firms

54 Pages Posted: 19 Nov 2012 Last revised: 21 Jan 2014

See all articles by Paul Ehling

Paul Ehling

BI - Norwegian Business School

David Haushalter

Pennsylvania State University - Mary Jean and Frank P. Smeal College of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: January 2014

Abstract

Using a database of more than 180,000 private companies from 2000 to 2009, we find that the benefits of holding more cash vary substantially with a firm’s size and the conditions it faces. Cash holdings matter most for small firms: When there are negative shocks to industry or macroeconomic conditions, a small firm’s cash holdings are positively associated with changes in its sales and assets. Cash is less important for other conditions. Differences in the benefits of cash holdings between large and small firms are traced to a firm’s ability – and willingness – to increase leverage when there is a cash shortfall.

Suggested Citation

Ehling, Paul and Haushalter, David, When Does Cash Matter? Evidence for Private Firms (January 2014). Available at SSRN: https://ssrn.com/abstract=2177698 or http://dx.doi.org/10.2139/ssrn.2177698

Paul Ehling (Contact Author)

BI - Norwegian Business School ( email )

N-0442 Oslo
Norway
+47 46410505 (Phone)

David Haushalter

Pennsylvania State University - Mary Jean and Frank P. Smeal College of Business Administration ( email )

University Park, PA 16802
United States
814-863-7969 (Phone)
814-865-3362 (Fax)

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