| Popis: |
Prior literature has shown that U.S. firms hold large amounts of cash for precautionary reasons: faced by heightened uncertainty regarding future cash needs, firms choose to hold more cash. We decompose firm-level uncertainty into systematic and idiosyncratic components, and find that the systematic component, rather than the idiosyncratic component, explains firms’ cash holding decisions. We further decompose systematic uncertainty and find that uncertainty regarding macroeconomic policy, interest rates, and the market risk premium are important determinants of cash holdings. The results stem from the effect of macroeconomic level uncertainty on both the need for and the cost of external financing. |
