Bank Cash Holdings and Investor Uncertainty

Cash holdings have often been presumed to help resolve the inherent uncertainty of assessing banks. Nonetheless, extant empirical evidence is inconclusive. The present paper adopts a novel approach to assessing the level of stockholder uncertainty associated with the cash holdings reported by European banks before, during, and after the financial crisis of 2007-2009. The paper finds that stockholder uncertainty may be significant when cash holdings exceed or fall short of the levels warranted to meet depositor demands. It concludes that investors monitor bank cash holdings in relation to short-term liabilities. Cash holdings may thus contribute to making banks more opaque.
info:eu-repo/semantics/published