The impact of macroeconomic uncertainty on non-financial firms' demand for liquidity |
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Authors: | Christopher F Baum Mustafa Caglayan Oleksandr Talavera |
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Institution: | a Department of Economics, Boston College, Chestnut Hill, MA 02467, United States b Department of Economics, University of Glasgow, United Kingdom c Department of Economics, University of Bristol, United Kingdom d DIW Berlin, Germany |
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Abstract: | This paper empirically investigates whether changes in macroeconomic volatility affect the efficient allocation of non-financial firms' liquid assets. We argue that higher uncertainty will hamper managers' ability to accurately predict firm-specific information and induce them to implement similar cash management policies. Contrarily, when the macroeconomic environment becomes more tranquil, each manager will have the latitude to behave more idiosyncratically as she can adjust liquid assets based on the specific requirements of the firm, bringing about a more efficient allocation of liquid assets. Our empirical analysis provides support for these predictions. |
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Keywords: | E32 G31 M31 |
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