All You Need is Cash: Corporate Cash Holdings and Investment after the Financial Crisis

51 Pages Posted: 17 Dec 2019 Last revised: 13 Jan 2020

See all articles by Andreas Joseph

Andreas Joseph

Bank of England

Christiane Kneer

Bank of England

Neeltje van Horen

Bank of England; Centre for Economic Policy Research (CEPR)

Jumana Saleheen

Bank of England

Multiple version iconThere are 2 versions of this paper

Date Written: January 2020

Abstract

Firms with high pre-crisis cash holdings invested significantly more than their cash-poor rivals during the global financial crisis and especially so during the recovery phase. This resulted in a persistent and growing investment gap between cash-rich and cash-poor firms. Cash especially benefitted young and small firms and firms in industries where rivals became more financially constrained. The amplification effect of cash was absent in the period preceding the crisis. The ability to continue to invest allowed cash-rich firms to gain market share and accumulate more profits over the long-run. Having a liquid balance sheet when the credit cycle turns thus gives firms a competitive edge that lasts far beyond the crisis years.

Keywords: cash holdings, credit constraints, financial crisis, Firm Investment

JEL Classification: E22, E32, E44, G32

Suggested Citation

Joseph, Andreas and Kneer, Christiane and van Horen, Neeltje and Saleheen, Jumana, All You Need is Cash: Corporate Cash Holdings and Investment after the Financial Crisis (January 2020). CEPR Discussion Paper No. DP14199, Available at SSRN: https://ssrn.com/abstract=3504629

Andreas Joseph (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Christiane Kneer

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Neeltje Van Horen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://www.bankofengland.co.uk/research/Researchers/neeltje-van-horen

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jumana Saleheen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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