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What drives corporate liquidity? An international survey of cash holdings and lines of credit

Journal

Journal of Financial Economics

Subject

Finance

Publishing details

Journal of Financial Economics 2010 Vol 98:1 p 160-176

Authors / Editors

Servaes H;Lins K;Tufano P

Biographies

Henri Servaes

Publication Year

2010

Abstract

We survey chief financial officers from 29 countries to examine whether and why firms use lines of credit versus non-operational (excess) cash for their corporate liquidity. We find that these two liquidity sources are employed to hedge against different risks. Non-operational cash guards against future cash flow shocks in bad times, while credit lines give firms the option to exploit future business opportunities available in good times. Lines of credit are the dominant source of liquidity for companies around the world, comprising about 15% of assets, while less than half of the cash held by companies is held for non-operational purposes, comprising about 2% of assets. Across countries, firms make greater use of lines of credit when external credit markets are poorly developed.

Publication Research Centre

Institute of Finance and Accounting

Available on ECCH

No


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